Thomas Gillet and Brian Marly, Sovereign and Public Sector

The no-confidence vote against Prime Minister Michel Barnier derails the implementation of France’s multi-year budget plan and reform agenda. We downgraded France to AA-/Stable in October due to the sustained deterioration of public finances and an increasingly challenging political outlook.

With fresh legislative elections constitutionally not possible before mid-2025, France’s hung parliament is unlikely to ease the process of appointing a new prime minister with broad political support.

Any plausible configuration of a new government will fall short of the necessary legislative backing to effectively tackle France’s widening budget deficit and rising debt-to-GDP, with no party or coalition having an absolute majority in the National Assembly.

As political uncertainties are unlikely to dissipate in the near term, France could face a prolonged period of political vacuum, characterised by early elections and short-lived governments, at least until the next presidential election scheduled for 2027.

Political uncertainty weighs on fiscal sustainability

Near-term uncertainty raises the risk that France’s deficit continues to increase in 2025, getting closer to the 7% of GDP projected by the government in a no policy-change scenario, against a target of 5% set in the draft budget. This would be the third consecutive year of budgetary slippage, after deficits of 6.1% in 2024 and 5.5% in 2023.

As the government’s collapse raises the likelihood of new elections next year, reaching fiscal targets in a timely manner amid a busy electoral calendar will prove more challenging. Additional delays will further undermine confidence in France’s multi-year plan to comply with the European Union’s economic governance framework.

Rising net interest payments from 4% of revenue in 2024 to almost 6% in 2029 and sluggish growth also contribute to higher debt-to-GDP, projected to rise to 119% by 2029.

Institutional strengths mitigate the risk of budget stalemate

Despite these challenges, France’s strong institutional framework provides the necessary safeguards to ensure a budget law is passed next year, with the last-minute rolling over of the 2024 budget by parliament the most likely scenario. Even if the hung parliament fails to use emergency legislation to pass a budget law, President Emmanuel Macron could trigger emergency powers to ensure the continuity of state functions.

However, a protracted period of political paralysis or instability before the next presidential election could be credit negative should it significantly weaken the governance and fiscal outlooks, even allowing for the many factors supporting France’s credit rating. These include a broad and liquid market for government debt and the country’s position as a core euro-area member state.

Next calendar review date is scheduled for April 2025.