France Falls Into Political Purgatory … Again

Editors’ note: MarketMinder Europe is nonpartisan, favouring no party nor any politician, and assesses political developments solely for their potential effects on the economy, markets and personal finances.

France’s new political revolving door turned again last week, as French Prime Minister (PM) François Bayrou and his minority government lost a no-confidence vote—spurring speculation amongst commentators we follow around France’s 2026 budget and federal debt. Whilst President Emmanuel Macron ruled out a snap election, tapping Sébastien Lecornu as PM, budget concerns linger amidst a fractured French legislature. Public frustrations are rising, which fiery protests have illustrated, but we think scale and perspective provide valuable insight for investors. Political uncertainty isn’t great, but experience tells us French markets are very used to it … and to faulty debt concerns. In our view, both bullishly keep sentiment toward the country’s stocks low, facilitating positive surprise.

We think it stands to reason last week’s outcome was widely expected. Bayrou narrowly survived a separate no-confidence vote in July, but he never gained budget support from the populist National Rally, the Greens or the centre-left Socialists, whose vote he needed to survive.^[i] The latter even hinted at toppling him this month, so we think the shock factor here was limited.^[ii]

Lecornu offers a fresh face, but an uphill battle in passing the 2026 budget through a fractured parliament likely remains. And, like Bayrou, he lacks common ground with France’s parties. Lecornu is a member of Macron’s centrist Renaissance (RE) party, whose austerity-focused budget proposals have proven broadly unpopular.^[iii] With RE holding 26% of the seats, they need help to advance anything through a deeply gridlocked parliament.^[iv]

That probably won’t come easily. The National Rally and centre-right Les Républicains are targeting various government spending cuts and lower taxes whilst the leftist New Popular Front has suggested tax hikes to fund increased spending.^[v] In our view, this rift helps explain the speculation we are seeing today—gridlock could block any budget reform, allowing French debt to spiral and potentially introducing supranational sanctions or even a bailout. With 30 September’s deadline for new budget talks looming, commentators we follow are warning of the consequences.

For now, let us explore some potential outcomes. Macron rejected a snap election upon Bayrou’s dismissal, triggering an impeachment motion from the leftist France Unbowed party.^[vi] This is unlikely to materialise, though, as the party lacks much influence.

Whilst budget disagreement abounds, all parties say they want the deficit under control. However, none seem to agree on how or whether to cut spending. In February, Bayrou couldn’t even rally agreement on slower projected spending increases, so he triggered a constitutional loophole to force 2025’s budget through without a parliamentary vote.^[vii]

France Unbowed and the National Rally prefer a snap election, thinking it could help them increase their seats. That complicates compromise greatly, but years of following politics have shown us anything can happen. Lecornu, who enjoys warm relations with National Rally leaders Marine Le Pen and Jordan Bardella, may be able to offer enough concessions to get a deal done. Time will tell.

And if parliament can’t pass a 2026 Budget? Lecornu (or whoever the PM is) could invoke the aforementioned loophole—Article 49.3—to pass it without a vote, though it would trigger an opposition no-confidence vote, potentially ousting the PM. Parliament could also use Article 47 to pass a budget by Senate ordinance. Or, with emergency measures, the government can temporarily collect taxes and operate on the previous budget.

Regardless of outcome, we don’t think any of this is a major factor for markets. Firstly, in our view, markets are accustomed to French political uncertainty at this point. Not only did political developments strongly hint at Bayrou’s ousting, but it marked the third French PM losing a no-confidence vote in a year.^[viii] To us, stocks aren’t surprised by France’s fractured government today, likely anticipating this after last year’s snap election returned a hung parliament.^[ix]

Also, we think bond markets hint at this being widely expected. Whilst most coverage we follow highlights very long-term French government bond (known as OAT) yields’ spike in the run-up to last Monday’s vote, few have noted they fell the week prior, erasing much of their initial rise.^[x] Consider: Since France’s revolving door saga started in September 2024, 10-year OAT yields are up only 0.65 percentage point (ppt).^[xi]

In our view, this isn’t strong evidence that bond markets are panicking. For perspective, Exhibit 1 contrasts 10-year OAT yields against similar yields in Portugal, Ireland and Greece—the centerpieces of the early 2010s’ eurozone debt crisis. As the chart shows, their spikes then simply aren’t comparable to French yields’ minor rise today, which is also echoed globally.

Exhibit 1: Comparing European Long Yields

Source: FactSet, as of 10/9/2025. Benchmark 10-year bond yields in France, Portugal, Ireland and Greece, 31/12/2006 – 10/9/2025. Ireland has no data from April 2012 to April 2013 due to its bailout.

Plus, OAT yields are still below their 1990s and early 2000s levels—fine periods that saw French gross domestic product (GDP, a government-produced measure of economic output) grow and stocks largely track developed Europe.^[xii]

French stocks have also seemingly moved on, rising 10.2% year to date in euros (14.5% in pounds) despite perpetual handwringing about the budget and political gridlock. They are roughly flat since July’s opposition dust-up—not tumbling on political instability and budget theatrics.^[xiii] Now, France is lagging Europe a bit over this stretch, which might hint at uncertainty hanging over returns.^[xiv] But the more markets get the lay of the land, the more we find they move on.

However the politics play out, we don’t think French debt fears are rooted in reality. Yes, French debt is 116.3% of GDP and annual public spending is roughly 57%, and the EU budget police are griping about France’s 5.8% of GDP deficit.^[xv] But our research suggests markets only care about whether debt is serviceable, and France’s statistics agency Insee estimates 2025’s interest outlays will be between 10 – 11% of tax revenues.^[xvi] Yes, this figure is up recently.^[xvii] But Insee’s 2025 estimate matches 1990’s levels and, again, no economic crisis followed. Hence, we aren’t seeing some major underlying market risk here. The US has higher interest outlays as a share of tax revenue (17.9%) and its economy seems to be in fine shape.^[xviii]

Clearly, we can’t know now if Lecornu will get a budget through or if his premiership will meet the proverbial guillotine. Still, we think most data suggest French finances are in fine shape, so today’s speculation appears off-base to us—another factor dragging sentiment in Europe, in our view.