BRUSSELS, BELGIUM – OCTOBER 15: European Commissions UK Task Force Chief Negotiator, Michel Barnier … [+] talks to the media during a conference at the end of the first day of an EU Summit on October 15, 2020 in Brussels, Belgium. EU leaders meet to examine the post-Brexit negociations under pressure from British Prime Minister to give ground or see Britain walk away with no trade deal. (Photo by Thierry Monasse/Getty Images)
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In France, the deadlock around the formation of a government has been broken with the appointment of veteran politician Michel Barnier as prime minister. His next two tasks are to assemble a cabinet and craft a budget that will secure his government’s passage through parliament into October. Relatedly, key policy areas will be migration and security (to buy Rassemblement support).
While there is no firm cabinet in place, the rumour machine suggests that the Barnier cabinet will be largely a centrist one, with several expert MP’s in place (for example Philippe Juvin, an experienced medic, may become health minister), and there is speculation that existing political heavyweights like Gerard Darmanin will stay in government and that Tony Estanget (who masterminded the Olympics) might be asked to join the government. Barnier is also actively searching for a left wing (socialist) minister to add to the cabinet.
At the time of writing, the formation of the cabinet seems to be floundering on the inclusion of a left leaning minister, though some experienced political figures like Segolene Royale have not been slow in allowing their names to be circulated.
Barnier has so far emphasized healthcare and education as focal points, but the dominant discourse is the budget, which will have to be ‘austerity’ led.
The budget is due by October 1st and envisages cuts of Eur 30bn. Barnier has emphasized this several time already and has declared that during his term of office he does not want to see the debt level rise. He has also asked Brussels (France is under excessive debt procedure ‘review’) for an extension (to October 15) for the presentation of his deficit reduction plan, which we think he will be granted (he is something of a hero in Brussels given his leadership of the Brexit talks). Barnier’s new chief of staff, Jerome Fournel, used to work in the Treasury – a mark of how important the focus on the deficit is.
With a cabinet not yet formed it is not impossible that the government will have to rely on a controversial article in the constitution to pass the budget, which would heighten the political tension. Reflecting this spread between French and German bond yield spreads remains elevated. Granted that both the far left and far right have very strong policy instincts towards spending, a government with a centre-right bias is important from a markets point of view.
However, my sense is that the Rassemblement will not derail the Barnier budget, and there is a good chance that his government can ‘persist’ for at least a year. Behind the scenes the greater game is the next election, with a small chance that this happens before 2027 given the political vulnerability of the president. In that regard some form of political-economic crisis later in 2025 cannot be ruled out.
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Publish date : 2024-09-12 19:50:00
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