Balance of Power – Special Coverage: French Government Falls After Vote

Podcast: Balance of Power
Host: Bloomberg (Joe Mathieu & Kailey Leinz)
Episode Date: December 4, 2024

Episode Overview

This special episode focuses on the dramatic fall of the French government after a historic no confidence vote in Parliament. Correspondents provide in-depth, real-time analysis on the factors leading to the collapse, immediate consequences, emerging political scenarios, and the implications for France’s financial markets and the broader eurozone. Major guest contributors include Stephen Carroll (Bloomberg Daybreak Europe anchor, reporting from Paris) and Stephen Englander (Global Head, G10FX Research, Standard Chartered Bank).

Key Discussion Points & Insights

1. Background: How France Got Here

• Macron's Snap Election Gamble:
  Emmanuel Macron called early parliamentary elections in June 2024, hoping to reinforce his political position after poor European Parliament results. Instead, the result was a deeply fractured National Assembly.
  • “Unfortunately, French people didn’t have the same idea and what he ended up with was fewer numbers of MPs in the national assembly and a very fractured parliament...”
    — Stephen Carroll [01:45]
• Fragmented Parliament:
  The new Assembly split among three major blocs:
  • Marine Le Pen’s far-right National Rally
  • Macron’s centrist allies (with some center-right)
  • A large left-wing alliance
  • No group held a majority, making stable government impossible.
• Barnier’s Appointment & Failure:
  Macron appointed Michel Barnier, a respected elder statesman but not from his party, as Prime Minister, aiming to pass a budget amid deadlock.
• No Confidence Trigger:
  Barnier used a constitutional workaround to push through a budget, triggering the opposition’s right to call a no confidence vote.

2. The No Confidence Vote: What Happened

• Political Theater:
  Fierce debate in Parliament, culminating in Prime Minister Barnier’s plea for “truth and responsibility.”
  • “Michel Barnier got up at the end to lay out his position to saying it’s a moment of truth and responsibility for France and we’ll find out if anyone listened to him in just a couple of minutes time.”
    — Stephen Carroll [02:54]
• Result:
  The motion easily passed—331 votes for, only 288 required.
  • “The French government falls after no confidence vote in Parliament. The French no confidence motion passes with 331 votes. 288 were needed.”
    — Interviewer [06:46]
• Immediate Aftermath:
  The government must resign; Macron is now responsible for nominating the next Prime Minister and forming a new government.
• Notable:
  This is only the second time under France’s Fifth Republic (since 1958) that a government has fallen to a no confidence vote.
  • “The only time it’s happened that a government has lost a vote of no confidence was in 1962.”
    — Stephen Carroll [06:32]

3. What Happens Next for France?

• No Shutdown, but No Clear Path:
  “Shutdown” is a buzzword, but France will avoid US-style government paralysis. Services continue, but monthly spending will be capped at 1/12th of the prior year’s budget for each department—a stopgap with major drawbacks.
  • “They’re even using the word shutdown in French, which is quite funny, but they’re still gonna collect taxes, Public services will still run...”
    — Stephen Carroll [04:27]
• Tax and Welfare Impact:
  • 18 million households could face tax increases as inflation-linked tax thresholds stall.
  • Pensioners may receive their inflation-linked increases immediately in January (instead of late in the year).
  • Some targeted reforms, like aid for farmers, will not be paid out.
• Market Pressure:
  France’s budget deficit is already above EU rules; failure to introduce a credible fiscal plan could spook markets further.
  • “They need to come up with a credible fiscal plan for the country so as to calm the fears that exist on the markets.”
    — Stephen Carroll [05:39]

4. Who Will Be Prime Minister?

• No Clear Frontrunner:
  Michel Barnier ruled himself out. Attempts to find agreement with the left (notably the Socialist Party) failed before, and no consensus candidate has emerged.
  • “There are a couple of names that have been floated around, but it’s not a specific list... There’s no obvious candidate for who would take over. Because the challenge facing the person... is they have the same parliamentary maths to deal with.”
    — Stephen Carroll [08:58]
• Potential Names:
  • Bernard Cazeneuve (former Socialist Prime Minister and Interior Minister)
  • François Bayrou (centrist, close Macron ally)
  • Both would face the same fragmented Assembly.
• Political Vacuum:
  A caretaker government is likely in the interim, complicating efforts to tackle France's budget crisis.

5. Macron’s Position and Political Future

• Macron Not Resigning:
  Despite calls from the far right (Le Pen) and far left, Macron is constitutionally secure and shows no intention of stepping down. His term runs until 2027.
  • “Emmanuel Macron has brushed off any suggestion that he will resign. There’s no way that he can be forced to. This vote doesn’t affect his position in power and he’s due to stay in office until 2027.”
    — Stephen Carroll [15:19]
• Rising Influence of Political Extremes:
  Both far right and far left alliances have grown stronger under Macron’s tenure.

6. Market Reaction and Economic Implications

• Initial Market Response:
  • French bond futures and the euro briefly reacted to the news, but markets quickly steadied.
  • French government borrowing costs (spreads) have risen modestly since mid-November.
• Economic Stopgap:
  The temporary budget rules effectively impose an austerity-like effect, as spending is held flat in nominal terms (so it falls in real terms due to inflation).
  • “It’s kind of an austerity budget because nothing’s indexed in nominal terms. It’s all the same level of spending. So it’s a lower real spending. So from a market perspective, this isn’t a disaster right now...”
    — Stephen Englander [12:54]
• Risks of Broader European “Spillover”:
  ECB will monitor carefully but aims to prevent contagion—especially to Italy and Portugal.
  • “If we start seeing Italian spreads going up and, you know, Portuguese spreads going up, that’s exactly what they don’t want and what they would react to initially.”
    — Stephen Englander [14:36]
• Equity Markets:
  French stocks have had their worst year since 2010. The CAC 40 index was up slightly on the day, reflecting general macro uncertainty rather than panic.
• Euro Outlook:
  The political drama drags on the euro, but hasn’t sparked panic-level selling.
  • “My guess is that we, we saw 1%, maybe slightly less, 3/4 of a percent impact on the euro. So the, the market is, is, is seeing it as an issue. It’s not really seeing it as a market crisis.”
    — Stephen Englander [18:58]

Notable Quotes & Memorable Moments

• “Unfortunately, French people didn’t have the same idea and what he ended up with was fewer numbers of MPs in the national assembly and a very fractured parliament.”
  — Stephen Carroll [01:45]

• “The French government falls after no confidence vote in Parliament. The French no confidence motion passes with 331 votes. 288 were needed.”
  — Interviewer [06:46]

• “It sets up a huge task for whoever is going to take over after Michel Barnier, if indeed he is forced to resign, as to whether or not they can put together the plan and achieve something that a man who was legendary for his negotiation skills wasn’t able to.”
  — Stephen Carroll [05:54]

• “There’s no obvious candidate for who would take over. Because the challenge facing the person who takes on that is they have the same parliamentary maths to deal with.”
  — Stephen Carroll [08:58]

• “My guess is that we, we saw 1%, maybe slightly less, 3/4 of a percent impact on the euro. So the, the market is, is, is seeing it as an issue. It’s not really seeing it as a market crisis.”
  — Stephen Englander [18:58]

Important Timestamps

• [01:45] — Stephen Carroll’s summary of political events leading to crisis
• [06:46] — Breaking news: French government falls after no confidence vote
• [08:58] — Discussion of possible new Prime Ministers, political deadlock
• [12:54] — Stephen Englander on market and economic implications
• [14:36] — ECB’s stance on euro area “spillover” risk
• [15:19] — Macron’s position, opposition calls for resignation, future scenarios

Conclusion

The fall of France’s government is a historic and destabilizing moment that leaves the country in political limbo—with major implications for citizens’ wallets, welfare, and the European financial system. The crisis is marked by entrenched partisanship, the rise of the political extremes, and a profound challenge for Emmanuel Macron’s presidency. Nevertheless, the immediate market reaction is muted; the bigger risk is prolonged instability and the inability to tackle France’s fiscal challenges.

For those following French and European politics or market watchers seeking clarity on the real-time consequences of France’s parliamentary drama, this episode offers expert, on-the-ground insights and nuanced financial analysis.