Euro and French stocks fall as Michel Barnier’s government faces collapse
Far-right lists ‘red lines’ that must be removed from budget to regain its support
MPs will begin voting on a finalised version of the budget this afternoon
Victor Velter / Alexandros Michailidis / Shutterstock
France’s stock market has reacted negatively this morning to the growing political uncertainty in the country with prime minister Michel Barnier and his government facing imminent collapse.
The instability has also affected the strength of the Euro with the currency seeing its largest day-on-day price drop in over a month. It is now close to a two-year low against the pound.
Insider sources claim Mr Barnier has announced to government members that he will use the controversial article 49.3 mechanism to force sections of the budget through the Assemblée nationale without a vote.
This will leave his government open to a vote of no confidence that opposition MPs from both left-wing parties and far-right Rassemblement National have said they will support. If this happens and the motion passes it will topple the government.
The vote of no confidence can be activated as soon as article 49.3 is used, with a debate on the budget beginning at 15:00 today (December 2).
Falling stocks
The CAC 40 price index - which tracks the largest shares listed on the Paris stock exchange and is viewed as a leading indicator of market confidence - dropped by 1.2pc in early trading today Monday. The price of French stocks fell across the board.
In turn, other European stock exchanges including in Frankfurt (0.28%) and Milan (0.58%) fell. London’s exchange remained almost stable (falling by 0.09%)
Why is the government set to collapse?
The government’s budget has failed to receive support among MPs in the Assemblée nationale, where votes to definitively pass various sections of the bill are to be held from today onwards.
The bill is set to fail its passage via a traditional vote, and insider sources claim Mr Barnier will force today's excerpt of the bill through the chamber via article 49.3, which leaves the government open to facing a motion de censure (vote of no confidence).
MPs from parties within the left-wing Nouveau Front Populaire alliance have already said they would vote in favour of toppling the government during any vote of no confidence. They are the largest alliance in the chamber but do not control a majority of seats.
The far-right initially gave Mr Barnier and his government informal support and a temporary promise that it would not vote for its downfall until they had been given enough time to show how they would govern.
Read more: Why and when is the French prime minister at risk of losing his job?
This grace period is seemingly now up and the RN is dissatisfied with the government’s budget, which it claims hits working people, small business owners, and pensioners.
Days of attempts by the government to retrieve assurances that the RN would not impede the budget seem to be over, with party leader Jordan Bardella announcing this morning that the party will vote to topple the government via a motion de censure “unless a miracle happens.”
This includes any motion brought forward by the left – with the left themselves promising to file a motion every time the government uses article 49.3 – making the downfall of the government seem all but confirmed.
Far-right ‘red lines’
Mr Barnier’s sole recourse would be to significantly alter the budget he is set to present to MPs today to ensure it receives backing from the RN.
However, the far-right party has a series of ‘red lines’ that it says must be removed in order for this to happen.
These red lines are:
Removal of tax increases on electricity consumption – Mr Barnier approved the removal of these taxes last week
Reduction in the Aide Medicale d’Etat, a free healthcare provision for undocumented migrants on low incomes – Mr Barnier also announced last week funding for this had been reduced, but the scheme had not been fully scrapped
An end to reimbursement for certain drugs via social security payments – Mr Barnier announced today such plans were removed from the budget in a last ditch effort to garner support
A cancellation of delays to pension indexing from January 2025 to July 2025, causing around 15 million pensioners to lose out on €15 per month over the period
As of 14:00 today, there has been no announcement that the government is willing to budge on the final point, which is a cornerstone of cost-cutting measures in the budget.
Whether movements on the other ‘red lines’ is enough to garner the support of the RN remains to be seen as the votes take place over the course of this week.
