Seeing the writing on the political wall for his proposed budget for 2026, French Prime Minister Francois Bayrou appears to have chosen to take matters into his own hand and call for a vote of no confidence in his government on September 8th, and with it implicitly on his proposed budget consolidation from a deficit of 5.4 percent in 2025 to “just” 4.6 percent in 2026. While the political outlook for France hence looks highly uncertain in the coming months, it is on the other hand now clear that next year’s budget will have a deficit larger than 4.6 percent. Any material future French budget consolidation has hence been postponed, and the ongoing deterioration of French ratings (more downgrades/negative outlooks look certain), gross debt levels, and longer yield levels will continue until at least the 2027 presidential/parliamentary elections are settled.
Bayrou has decided to roll the political dice and call a no confidence vote – which looked inevitable anyway as part of the Autumn budget process – in himself under Art 49.1 of the French Constitution. This means that a simple majority of votes cast, excluding abstentions, against the government forces Bayrou to resign. This is a politically lower threshold than a vote under Art 49.3 (which is triggered if a sitting government forces through a law without a majority in parliament), which requires an absolute majority of all parliamentary votes including abstentions against a government to cause its collapse. Bayrou is in other words intent on forcing opposition parties to declare their continued acceptance of his premiership, or take responsibility for his ouster and likely subsequent political instability. It is implicitly a platform of “support me now or chaos will prevail in France”.
Following the collapse of pension reform negotiations in the spring, the Socialists and the rest of the parliamentary leftist parties are in favor of pushing Bayrou out, as is seemingly the far-right RN party under Marine le Pen’s leadership. The latter is somewhat surprising, as Marine le Pen remains ineligible to run for parliament due to an earlier conviction for embezzlement currently under appeal. Hence as of today, Bayrou’s resignation looks the most likely outcome in early September. The only alternative political option seems an unlikely quick U-turn by Bayrou on 2026 budget consolidation to secure the support ahead of September 8th of either the left or right in Parliament.
Following a lost confidence vote, it will be up to President Macron to accept Bayrou’s resignation or not. Even if he likely does so, Macron is likely to take his time, while he looks for a replacement with the possibility of securing a parliamentary majority. Macron may put forward a center-left Socialist “grandee” to try to split the leftist group in Parliament, or he may try lure RN by nominating a relatively rightwing but still centrist candidate. Whoever is ultimately chosen by Macron as the next Prime Minister, France looks set for a period autumn political instability and likely another delayed budget in 2026.
Macron also has the option to call new early elections, and while this cannot be ruled out given the president’s risk-taking habits, present polls suggest another hung parliament and relatively unchanged block sizes. Macron would hence have to bet that the polls are wrong if he calls another election, though of course the sitting parliament could – by simply vetoing all his proposed candidates for prime minister – de facto force him to eventually call early elections. Such an action though would shift political responsibility for instability away from the president and onto the parliamentary groups. The de facto collapse of the NFP – the alliance of the center-left Socialists and far left implemented during the summer 2025 early elections – makes new elections more unpredictable, as does the expected impact of another round of early elections on French local elections scheduled for March 2026. All told, another round of early parliamentary elections in France remain less likely than the current parliament ultimately selecting a new prime minister.
Another round of prolonged political uncertainty in France is, as noted above, certain to postpone any more forceful budget consolidation in 2026. A lower deficit from higher spending would directionally support economic growth in 2026, but expected continued high levels of political uncertainty would negatively impact private business investments and confidence, and likely also French consumption. French growth hence is likely to remain well below potential at around probably half a percentage point in 2026, given the current political and budget outlook. French debt would rise correspondingly faster, and also longer (e.g. beyond 2y) maturities of French bond yields looks likely to rise towards the euro area top.
Were another round of early elections to be called in France, it would also have broader negative effects on the Fall EU policy agenda, especially any possible trade negotiation announcements. It simply is less likely that potentially large new EU FTAs with India or Indonesia will be concluded, or the EU-Mercosur FTA be ratified, if France is in the middle of a parliamentary election campaign later this year. This is highly unlikely to ultimately derail these increasingly probable EU trade deals (political agreement was reached with Indonesia in July), but could postpone their announcement.
Jacob
