Italy used to be the bad boy of Europe. Now, France is taking the baton

Heading into another vote of confidence next week, France now unexpectedly finds itself unfavorably compared to Italy, a country previously renowned for political upheaval and economic frailty.

Continued fighting between France's main political parties and unresolved arguments over the 2026 budget, as well as a revolving door of failed prime ministers in the last couple of years, have led economists to ask: "Is France the new Italy?"

"The fiscal outlook for France is worse than that of Italy, at present" Nomura's European research analysts said in a Tuesday note.

France's debt pile amounted to 113% of its GDP in 2024, while Italy's was 135% — but the tables turned when it came to considering the countries' deficit over that period. On that metric, Italy's deficit came to 3.4% of its gross domestic product (GDP), whereas France's was 5.8% of its GDP.

French Prime Minister Francois Bayrou last week called a confidence vote for Sept. 8, as he seeks to pass a contentious 2026 budget containing around 44 billion euros ($51.3 billion) in cuts. The aim is to bring France's budget deficit down to 4.6% in 2026, a level still well above EU deficit rules.

Bayrou has positioned next Monday's confidence vote as an existential moment for France, telling BFMTV on Wednesday that the situation is "grave and urgent."

If he and his minority government don't win the vote, the government will collapse less than a year after his predecessor Michel Barnier's short-lived administration imploded, and another PM — the fifth in less than two years — will have to be chosen by French President Emmanuel Macron.

The situation in France puts it in an unfavorable position compared to Italy, which went through its own extended spell of political turmoil and economic uncertainty before current Prime Minister Giorgia Meloni was elected in 2022, ushering in a period of stability for the European Union's third largest economy.

Both France and Italy are under the European Commission's "Excessive Deficit Procedures" — a mechanism used by the Commission to bring EU member states back into line with the bloc's fiscal rules that state public debt must not exceed 60% of GDP, and budget deficits must not exceed 3% of GDP.

While Italy is expected to make progress in bringing its deficit under control, France shows no signs of doing so, Nomura outlined.

"The French deficit trajectory is fragile, however, and the likely toppling of Bayrou's government illustrates the challenge France faces in reining in its spending," Nomura economists said in emailed analysis.

Now, France's neighbors are watching as Bayrou has just days to find a budget compromise with rival parties on the left (the New Popular Front alliance) and right (National Rally) who feel, after last year's inconclusive election, that they should be in power.

Both sides of the political spectrum have indicated they will not support the centrist government in Monday's confidence vote after prolonged arguments over the budget and proposed spending cuts and tax rises. The proposal to cut two public holidays in France also went down badly.

"Due to the expected fall of Bayrou's government and the likelihood that parliament will not pass a 2026 budget this year, the 2025 budget will likely be frozen in nominal terms, which would mean a marginally higher deficit in 2026 as a percentage of GDP than forecast by the European Commission," Nomura noted, adding that debt sustainability in France is "a material concern."

The prospect of another likely government collapse in France — and ongoing disagreement over the 2026 budget — is an unedifying one for analysts.

"France, already facing unprecedented pressure from the financial markets, will present a pitiful, public spectacle next week," Mujtaba Rahman, managing director of Europe at Eurasia Group, commented in emailed analysis Tuesday.

Eurasia Group's base-case scenario is that Bayrou will lose the confidence vote, a move Rahman described as "a gamble that he was never likely to win."

"Macron has ruled out a new legislative election — for the time being — and will appoint his fifth Prime Minister in 21 months, almost certainly from within his center and center-right coalition," he noted, naming Defense Minister Sébastien Lecornu, Justice Minister Gerald Darmanin and Finance Minister Eric Lombard as possible replacements.

Reflecting wider financial market nerves around the parlous state of French politics, the yield on France's 30-year bond yield rose above 4.5% on Tuesday — hitting a level last seen in 2008 — before lightly easing to to 4.48% on Wednesday. Other major economies have also been experiencing elevated borrowing costs this week amid wider fiscal concerns.