French government falls again amid fiscal crisis
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The National Assembly in Paris. Photo: Nathan Laine/Bloomberg via Getty Images
Fiscal jitters have driven the French government to collapse for the second time in less than a year.
Why it matters: What happens in Paris might be a warning to the rest of the world about investors' new aversion to large deficits — and the political crises that come with trying to address it.
Driving the news: French prime minister François Bayrou was unable to survive a vote of confidence Monday afternoon, with opposition parties rising up against him over unpopular plans for budget cuts.
- France's deficit was 5.8% of GDP last year, the widest in the euro area and almost double the European Union's limit.
- Bayrou's plan — which proposed eliminating two public holidays and sweeping cuts to social welfare programs — was estimated to cut deficits to 4.6% of GDP by 2026.
The big picture: The quest to tame spending in Europe's second-largest economy has been bumpy, even as soaring borrowing costs put pressure on politicians — recalling memories of the euro zone debt crisis in 2012.
- European Central Bank President Christine Lagarde said last week that risk in her home country had increased in recent days.
- Investors are demanding the biggest premium in roughly a year to hold French debt relative to the German equivalent.
What to watch: In a speech ahead of the vote, Bayrou said France's debt load was "life threatening" for the country, France24 reported.
What's next: Bayrou will resign after losing the confidence vote, Bloomberg reports.
- French president Emmanuel Macron can name a replacement and risk a repeat — or dissolve the parliament and call for an early election, an outcome that he has resisted.
The bottom line: France is dealing with dual crises — forced austerity sparking public outrage and political upheaval — at a time when the global economy was already poised to slow from President Trump's trade war.
This is a developing story.
