Why is France's government on the brink of collapse, again?

"Prime Minister Francois Bayrou faces an uphill battle in securing support for his unpopular plans to shore up France's finances. French Prime Minister Francois Bayrou last week called for parliament to hold an earlier-than-expected vote of confidence in him. Next week's ballot could lead to the collapse of his centrist government and prompt a period of further instability in the European Union's second biggest economy."

"Financial markets were rattled after Bayrou's announcement on August 26. The interest payments on 10-year bonds rose to 3.5 percent on Monday, higher than debt-riddled Greece's 3.36 percent. At first blush, France's economy appears to be doing relatively well. The government's debt pile is lower, relative to the size of its economy, than in Italy. And the cost of financing the annual interest on its debt is well below that of the United Kingdom's."

"Last year, France's budget deficit reached 5.8 percent (168.6 billion euros, or $196bn) of its gross domestic product (GDP). The official EU target is no more than 3 percent. Investors worry that France's persistent deficits will cause ever higher debt ratios and undermine its credit score. For his part, Bayrou is trying to lower the government's borrowing to 4.6 percent of GDP in 2026 and to 2.8 percent by 2029."

Prime Minister Francois Bayrou has called for an earlier-than-expected vote of confidence that could collapse his centrist government if opposition parties vote against him. President Emmanuel Macron may soon need to appoint a prime minister for the third time in one year after dissolving parliament in June 2024. Bayrou's announcement rattled markets, sending 10-year bond yields to 3.5 percent, above Greece's 3.36 percent. France's budget deficit reached 5.8 percent of GDP last year, above the EU 3 percent target. Bayrou aims to cut borrowing to 4.6 percent by 2026 and 2.8 percent by 2029 to reduce debt-to-GDP.

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