France's political crisis just saw the government ousted — but Paris' problems have just begun

The toppling of French Prime Minister Michel Barnier's government Wednesday can be seen as the climax of months of political turbulence in France, with opposition parties on the left and far right forming an unlikely alliance to oust the government in a no-confidence vote.

Rather than marking the end of Paris' problems, however, the end of Barnier's short-lived premiership and government ushers in a new period of political turmoil and uncertainty in Paris, analysts and economists say.

Barnier resigned Thursday morning, hours after the vote yesterday evening which saw 331 lawmakers from the leftwing New Popular Front (NFP) alliance and the far-right National Rally (RN) support a no-confidence motion against his government.

The vote — held after weeks of wrangling over 2025 budget plans to hike taxes and cut public spending — was not a close call, with the number of deputies supporting the motion far exceeding the 288 necessary for the motion to pass in parliament, the National Assembly. It was the first time a French government has been ousted since 1962.

Barnier's ousting was the culmination of a political crisis that began when President Emmanuel Macron decided earlier this year to call snap parliamentary elections in a bid, ironically, to shore-up his centrist alliance's power base in the National Assembly.

In the end, the move backfired and Macron got exactly what he didn't want from the elections held in June and July: A heavily-reduced power base for his own Ensemble centrists and a National Assembly divided three ways with greatly-empowered leftwing and far-right factions, ready to prey upon Barnier, the prime minister that Macron eventually selected in September.

President Macron is now under pressure to find a replacement PM quickly, with Reuters reporting Thursday that he would like to have someone in place as soon as Saturday, when U.S. President-elect Donald Trump and other dignitaries are gathering in Paris for the re-opening of the Notre Dame Cathedral.

The next candidate will likely face the same problems Barnier did with the left and right expected to harass the new government with their own agendas for the 2025 budget just as much as they did with Barnier.

"France is ... entering a new era of political instability," Charlotte de Montpellier, senior economist of France and Switzerland at ING, said in a note late Wednesday.

"President Emmanuel Macron will have to appoint a new prime minister, who will have to form a new government. With the National Assembly highly polarised and divided into three main camps – left, centre-right and far-right – finding a new prime minister who will not face a motion of no confidence directly will be a very difficult mission," she said.

"It is therefore likely that France will remain without a government for several weeks, if not months," she added.

There is speculation that Macron could nominate his ally, Defence Minister Sébastien Lecornu for the post, or the veteran centrist leader François Bayrou, the president of the French member party Mouvement Démocrate. Other names that have been mentioned as possible candidates include Interior Minister Bruno Retailleau and former Prime Minister Bernard Cazeneuve.

Whoever inherits the job might not last long in the role, nor be expected to do so, according to Mujtaba Rahman, managing director of Europe at Eurasia Group.

"His (no "hers" are in the frame) first job will be to push through a 2024 budget rollover. His second will be to try to revive Barnier's deficit-cutting 2025 budget with amendments which might appeal — arguably an impossible task — to the left or the far right or both," Rahman said in a note late Wednesday.

Analysts presume that Macron will choose a successor to Barnier within days but note that the candidate's premiership could be effectively a stopgap until new parliament elections next July, a year on from the last vote.

"France's deepest and most tangled, political crisis for six decades will stumble on throughout next year," Rahman said, warning that "the confrontation between the three, mutually-hating forces in the National Assembly will continue for many months with no early prospect of agreement on a new budget for 2025."

Eurasia Group's new base-case scenario was that fresh parliamentary elections are inevitable next year, putting the probability at 75%.

As it stands, analysts think it's likely that France's major political blocs will agree a provisional budget, which simply rolls over the 2024 budget into next year. This will prevent any new year government "shutdown" where France is no longer able to meet its financial obligations.

Rolling over the budget might prevent an immediate crisis but it also delays an urgent need to tackle France's fiscal problems, with the budget deficit already predicted to hit 6.1% of GDP in 2024, and is expected to rise further if measures are not taken to rein in spending.

Investors appear to have accepted the fall of the French government as something of a 'fait accompli,' with the yield on France's benchmark 10 year government bond relatively stable around 2.9% Thursday — a far cry from a week ago when France's borrowing costs hit the same level at debt-laden Greece's — and the CAC 40 in positive territory at midday on Thursday.

Chris Beauchamp, chief market analyst at IG Markets, commented Thursday that the markets might not remain calm for long, particularly if the opposition's calls for President Macron to resign and call an early presidential election materialize, although this is seen as an unlikely scenario.

"A new caretaker will be appointed swiftly, but there seems no way out of the budget impasse. Markets remain calm for now, but if the Far Left and Right succeed in eventually toppling Macron as president then we can expect a fresh round of jitters in French yields, the CAC40 and the euro," he said in emailed comments.

ING's De Montpellier noted that the very likely extension of the 2024 budget to 2025 implies a fiscal policy that is less restrictive than planned in terms of tax revenues and in line with what was planned in terms of public spending.

"This means that the objective of a return to a deficit of around 5% of GDP in 2025, as promised by the Barnier government, is out of reach. The public deficit will remain high, probably around 5.5% of GDP, the debt will continue to grow and the next government – whoever it may be – will have an even more difficult task in getting public finances back on track," she warned.

"Furthermore, the fall of the government means that political uncertainty will persist and continue to weigh on business and consumer confidence, even though budgetary policy might be slightly less restrictive."

ING expected France's economy to grow by 0.6% in 2025, compared with 1.1% in 2024. It noted that a downward revision "cannot be ruled out if the instability persists, especially if bond yields would rise further on the back of the current political imbroglio."