France Falls Into Political Purgatory … Again

Editors’ note: MarketMinder is nonpartisan, favoring 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 Monday—curiously coinciding with Japan’s. French Prime Minister (PM) François Bayrou and his minority government lost a no-confidence vote, fanning fears around France’s 2026 budget and federal debt. While President Emmanuel Macron ruled out a snap election, tapping Sébastien Lecornu as PM Tuesday, budget concerns linger amid a fractured French legislature. As public frustrations rise, which fiery protests Wednesday illustrate, we think scale and perspective provide valuable insight. Political uncertainty isn’t great, but French markets are very used to it … and to faulty debt concerns. Both bullishly keep sentiment toward the country’s stocks low, facilitating positive surprise.

Mind you, Monday’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 center-left Socialists, whose vote he needed to survive. The latter even hinted at toppling him this month, so the shock factor here is limited.

Lecornu offers a fresh face, but an uphill battle in passing the 2026 budget through a fractured parliament 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. With RE holding 26% of the seats, they need help to advance anything through a deeply gridlocked parliament.^[i]

That probably won’t come easily. The National Rally and center-right Les Républicains are targeting various government spending cuts and lower taxes while the leftist New Popular Front has suggested tax hikes to fund increased spending.^[ii] This rift helps explain pundits’ fears today—gridlock could block any budget reform, allowing French debt to spiral and potentially introducing supranational sanctions or even a bailout. With September 30’s deadline for new budget talks looming, fear is spiking.

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. This is unlikely to materialize, though, as the party lacks much influence.

While budget disagreement abounds, all parties say they want the deficit under control. However, none agree on how or if 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.^[iii]

France Unbowed and the National Rally prefer a snap election, thinking it could help them increase their seats. That complicates compromise greatly, but politics is a weird business. Lecornu, who enjoys warm relations with National Rally leaders Marine Le Pen and Jordan Bardella, may be able to offer enough concessions to get things over the hump. 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, none of this is needle-moving for markets. Firstly, French political uncertainty is old news at this point. Not only was Bayrou’s ousting largely expected, but it marked the third French PM losing a no-confidence vote in a year. Stocks are used to France’s fractured government by now, likely anticipating this after last year’s snap election returned a hung parliament.

Also, bond markets—the nexus of today’s fears—hint at this being widely expected. While most coverage highlights very long-term French government bond (known as OATs) yields’ spike in the run-up to Monday’s vote, few have noted they fell much of last week, erasing much of their initial rise.^[iv] Heck, since France’s revolving door saga started in September 2024, 10-year OAT yields are up only 0.65 percentage point (ppt).^[v]

That is pretty thin gruel if you claim it constitutes panicky bond markets. For perspective, Exhibit 1 contrasts 10-year OAT yields against similar yields in Portugal, Ireland, Italy, Greece and Spain—the centerpieces of the early 2010s’ eurozone debt crisis. As you will see, 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 9/10/2025. Benchmark 10-year bond yields in France, Portugal, Italy, Ireland, Greece and Spain, 12/31/2006 – 9/10/2025. 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 GDP growth and stocks largely track developed Europe.^[vi]

French stocks have also seemingly moved on, rising 21.9% year to date 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.^[vii] Now, France is lagging Europe a bit over this stretch, which might hint at uncertainty hanging over returns.^[viii] But the more markets get the lay of the land, the more they move on.

However the politics play out, French debt fears aren’t 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.^[ix] But markets only care about whether debt is serviceable, and France’s statistic agency Insee estimates 2025’s interest outlays will be between 10 – 11% of tax revenues.^[x] As we covered last year, this figure is indeed up recently.^[xi] But Insee’s 2025 estimate matches 1990’s levels and, again, no economic crisis followed. Hence, we aren’t seeing some armageddon scenario here. The US has higher interest outlays as a share of tax revenue (17.9%) and is in fine shape.

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