New French PM faces a “Himalaya” of political and financial challenges
PARIS – New French Prime Minister Francois Bayrou said on Friday he faces a “Himalaya” of challenges to tackle France’s deficit, amid rising political fragmentation that has plunged the country into unprecedented turmoil.
President Emmanuel Macron named Bayrou as his fourth prime minister of 2024, replacing Michel Barnier, who was ousted by lawmakers last week for trying to pass a cost-cutting 2025 budget.
“Nobody knows the difficulty of the situation better than I do… I am not unaware of the Himalaya that stands before us,” he said. “I believe that this issue, the deficit and debt, is an issue that poses a moral problem, not just a financial one.”
The deficit, which is expected to close the year at over 6% of gross domestic product, lies at the heart of France’s political malaise. This has led Moody’s credit rating agency to unexpectedly downgrade the country’s rating from “Aa2” to “Aa3,” adding further pressure on the newly appointed prime minister.
“Political fragmentation is more likely to impede meaningful fiscal consolidation” in France, Moody’s said in its statement, adding that “there is now very low probability that the next government will sustainably reduce the size of fiscal deficits beyond next year.”
“As a result, we forecast that France’s public finances will be materially weaker over the next three years compared to our October 2024 baseline scenario,” the agency added.
XTB Research Director Kathleen Brooks said Bayrou’s appointment was unlikely to have a major impact on French bonds. Additionally, she said the CAC 40 French stock index .FCHI is underperforming German stocks by a three-decade margin.
“With France still mired in political turmoil, narrowing this gap is an uphill struggle, even with a new PM,” she wrote.
From Marseille to Rennes, including Paris, nearly 120 rallies and demonstrations “for employment and industry” were held across France on Thursday, organised by the CGT and supported by Solidaires and the FSU, in response to a wave of job cuts, according to Le Figaro.
“Today is a day of convergence with the railway workers’ strike against the dismantling of rail freight and the civil servants’ strike demanding a budget that meets the needs,” said Sophie Binet, leader of the second-largest trade union. “We are calling for the government to address this social emergency!”
France’s festering political malaise and economic crisis have raised doubts about whether Macron will complete his second presidential term, which ends in 2027.
In parallel, amid the chaos plaguing the French political and financial landscape, the public appears to be eager for a period of stability and order.
