Special Coverage: French Government Falls After Vote

Summary

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.

Transcript

[Host/Announcer]

These days, AI can help you adopt better time management, but it can't stop colleagues booking meetings during lunch. But how about being able to easily adopt industrial AI to streamline your business? Siemens Xcelerator helps you find the right AI providers and easily understand what they offer so you can use modular solutions to quickly scale up and grow your business. That's AI for real from the global market leader in industrial AI, Siemens. Learn more on USA.Siemens.com AI introducing the all new Adobe Acrobat Studio now with AI powered PDF spaces. Do more with PDFs than you ever thought possible. Need AI to turn 100 pages of market research into five insights with a click. Do that with Acrobat. Need templates for a sales proposal that'll close that deal. Do that with Acrobat need an AI specialist to tailor the tone of your market report to sound real smart in real time. Do do that with the all new Adobe Acrobat Studio. Learn [e-mail] do that with Acrobat Bloomberg Audio Studios Podcasts Radio News Lawmakers from.

[Interviewer]

The far left and right of France's political spectrum are set to combine and topple Prime Minister Michel Barnier's government tonight in Paris. The national assembly set to reconvene as we speak to and that is when we're supposed to get the result. Covering it all is Stephen Carroll, Bloomberg Radio daybreak Europe anchor Stephen joins us from our Paris bureau. Stephen, good to see you this evening. Earlier in your career you spent a decade working for France 24 television in Paris. You've interviewed President Emmanuel Macron, Prime Minister Michel Barnier. How did we get to where we are today?

[Stephen Carroll]

I mean, the short answer is, is that Emmanuel Macron called an election in June. He wasn't happy with how his party did in European Parliament elections, so he decided to go to the country, dissolve the parliament, the national assembly, call elections, thinking that it would reinforce his position, give French people the choice of who they wanted to govern. 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 that left the three large groupings, the Marine Le Pen's National Rally on the right, the far right, the his centrist group which he picked up some of the center right party as well, and this left wing alliance which is the biggest group in the Parliament as well. Nobody had a majority, nobody could govern. Then he had to try and find a government because his job as president he gets to nominate the Prime Minister and set the Agenda for policy. He picked Michel Barnier, this man who has had a storied 50 year career. He in French politics, he's been a minister, he's been a European Commissioner, he was the EU's chief negotiator on Brexit. He is a statesman. He brings with him. He's not from Macron's political family, so he brings with him the sense of somebody who is above the fray of politics. He's not currently an elected politician, so got him in to try and run the government to pass a budget, which was the biggest immediate concern. He brought the budget to Parliament, tried to negotiate a compromise with the various groups, wasn't able to do that, used a constitutional provision that allows them to force it through Parliament. But unfortunately the downside of using that provision is that the opposition can call a vote of no confidence in the government. And that's where we are now. And they're currently voting after about two and a half hours of debate in the French Parliament. Lots of views expressed. 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.

[Host/Announcer]

And Stephen, what happens in the immediate aftermath if the French government loses the no confidence vote?

[Stephen Carroll]

So we will. The first thing that happens is the government has to resign. Right. So Michel Bani and all of his ministers will present their resignation to the President. It then turns to the President, who will have to appoint the next government. But the more immediate problem, because there's no deadline for when Emmanuel Macron would have to pick the a new prime minister to lead and form a new government. The more immediate problem is France's current budget runs out at the end of the year. So then we roll over into 2025 and into relative political unknown. There won't be a shutdown. And it's actually been funny in a lot of the discourse here, people that keep mentioning, oh, it won't be like the us, we won't have a government shutdown.

[Interviewer]

Yeah, that's our problem.

[Stephen Carroll]

They'll still keep collecting. Yeah, they'll still keep collecting taxes. 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, but. But essentially what they'll do is they'll take the 2024 budget, carve it up into 12 pieces, and each department will get a 12th of their budget every month. That presents, as you might imagine, all sorts of problems because it's very difficult to run the state on that sort of month to month basis. It's not like working on your overdraft. And the other problem is that there were a load of measures in this budget that were going to change things both for taxpayers and for welfare recipients. So for taxpayers, the tax thresholds for income tax were due to rise in line with inflation. If that doesn't happen, everyone's got. Well, not everyone, but 18 million households are going to be paying more tax from January. There's good news though, for pensioners. They were due to get their inflation linked increase delayed after January to later in the year. They actually will get their inflation linked increase in January if there isn't a budget. But all of this presents the same problem that that France has had since the middle of last year. Its budget deficit is too large for EU budget rules, but also to be able to convince markets. And we've seen France's international borrowing costs rise as a result. Part of the issue now has to be is they need to come up with a credible fiscal plan for the country so as to calm the fears that exist on the markets. And the rise in borrowing costs has been moderate. It hasn't got to quite extremes yet, but. But 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.

[Interviewer]

Well, we are waiting to hear from the national assembly about the results of that vote. We will bring that to you imminently as we do get the results. Stephen, what about other names that at this point have emerged to take over as Prime Minister? What can you tell us there?

[Stephen Carroll]

Well, Michel Barnier ruled himself out in an interview on French television last night, which is important because it had been something that had been speculated that perhaps Emmanuel Macron might just say, we'll give it another go. By the way, the last time this happened, when the only time since the current constitution's been in force in France, which is since 1958, the only time it's happened that a government has lost a vote of no confidence was in 1962.

[Interviewer]

Steven, I'm sorry to cut you off. We're getting again, we're getting a result right now. The French government falls after no confidence vote in Parliament. The French no confidence motion passes with 331 votes. 288 were needed. Not too surprising given how closely you followed this. But what's your immediate reaction?

[Stephen Carroll]

I mean, look, it means there wasn't any defections. Michel Barnier's call for responsibility doesn't seem to have won over any of the MPs he was hoping. He was particularly targeting the center left party, the Socialist Party, who've been in government in France many times in recent history. The question of whether or not some of those MPs might be willing to abstain, for example, from this vote to try and save the government, he doesn't seem to have convinced them with this message. That's the number in and around what we expected, because it's basically, if you add together the left wing alliance and Marine Le Pen's far right National Rally, those parties put together give us that total of in and around 330. So it looks like that they didn't manage to convince anyone to cross the line. It's a result that's pretty much then in line with expectations, but now opens up the question of what happens next? What will Emmanuel Macron do? He's just landed back in France in the past few minutes from a visit to Saudi Arabia, where he was trying to brush off a lot of these political questions at home and continue on with international affairs, to little avail, as everyone just wanted to ask him what he planned to do after this vote went through. He had been asked on many occasions whether or not he might resign, and he says that's not an issue. It's not even in question that he would do that. Of course, his term runs till 2027. So we now set ourselves up for the timeline where the French President can take as long as he likes to appoint a new government with. We don't think he's going to leave it that long, but it does plunge us into a sort of political vacuum. Now we'll have to have a caretaker government to keep current affairs running, but it's going to make those big challenges, like dealing with the budget, even more difficult.

[Host/Announcer]

Stephen, do we have a good idea of who would likely be the next Prime Minister and what that new government would look like?

[Stephen Carroll]

We don't. There are a couple of names that have been floated around, but it's not a specific list of people that have been floated. You could imagine that Emmanuel Macron would try and pick from, if not his own political family, those who've already said that they would ally with him. There had been a question before Michel Barnier was picked as to whether he might be able to pick a politician from the Socialist Party, that center left party, and thus bring them into this center alliance that he was trying to create. But they couldn't agree between the left wing parties on the same candidate that Emmanuel Macron wanted. That was Barna Kasnov, who's a former interior minister. He was the one who had been mentioned last year, last time around this was in the discussions that led up to Michel Barnier being picked. But the names that are out there now are in the realm of speculation. There's no rallied support around someone, 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. Michel Barnier was dealt a very difficult hand. He didn't have a majority in Parliament. He did his best to try and build a, a way of working. He always said that he was leaving it to Parliament to be able to legislate and negotiate on important matters. That's failed. You have to ask who would be brave enough to step into those shoes? Because it's a pretty nasty hand of cards, to be honest.

[Interviewer]

That's exactly where I want to go. We're getting some commentary from France unbowed lawmaker Mathilde Panot, who says that, quote, finally the Barnier government has fallen along with its violent budget. Today is a historic day. What does a budget look like in France after this process?

[Stephen Carroll]

Well, look, we go into this situation where we're going to be going month to month from January. There's, there's very little hope that even if a government was formed tomorrow that they would be able to resuscitate this current budget plan and actually get anything in place by the end of the year. So either way, when it comes to the end, the 31st of December, we rolling into this suppose minimum service French state that's going to be in place from January of next year and that's going to bring back in those questions around tax rises for a lot of households who are paying income tax, those rises for pensions as well. And there were specific things like extra financial aid for farmers, which now won't be paid out because that won't go into the budget bill. So the next immediate step is that there will be a motion that will need to be passed in Parliament to I suppose activate this temporary measures to keep the state running the lights on, if you will. There's not expected to be any major opposition to that because no French politician wants to be responsible for, you know, no welfare payments being paid early next year. So there's not an expectation that we will have anything but this month to month situation operating from January with a larger budget deficit and with the pressure that's going to put on France's borrowing costs in international markets as well.

[Interviewer]

We're speaking with Stephen Carroll, Bloomberg Radio Daybreak Europe anchor joining us from our Paris bureau. Stephen Carroll has about a decade of experience covering French Politics working for France 24 TV in Paris. I do also want to bring in Stephen Englander, Global Head, G10X Research at Standard Chartered Bank. He joins us from New York. Stephen Englander, talking a little bit about the market reaction here. French bond futures now paring an earlier advance after the vote result, the euro paired gains to trade little changed at around A$5. How are you looking at market reaction here? What's the trade?

[Stephen Englander]

Well, I don't think that there's any immediate trade. The we started seeing French spreads widen around the middle of November. The euro has probably about a percent lower than it would have been absent, you know, this issue. I think the last few days the market has reconciled itself to a kind of very much a caretaker government. But also, you know, with what the other Steve mentioned, which is that the budget itself is 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. If it does become a political crisis, like even deeper, or if it spills over to the rest of Europe, that would become much more intense. And as we've seen here, typically these things get resolved because one side or another decides that it's taking a political literal beating, being seen as responsible for, you know, whatever checks don't go out or whatever?

[Host/Announcer]

Stephen Engler, I was going to follow up and ask, does this affect ECB policy at all? Is the central bank thinking about kind of this uncertainty around what happens next with the French budget?

[Stephen Englander]

I think the ECB is more, you know, say, cognizant of these issues right there. You know, we just heard Powell sort of, you know, drawing strict lines between fiscal and, you know, government and the central bank. I don't think the ECB has those strict lines going back to the European fiscal crisis. So, you know, maybe a little more likely to cut to make things easier. But I think initially at least their focus will be on trying to prevent any kind of spillover into the rest of Europe and reassure markets that they're ready to take action if anything would happen.

[Interviewer]

Stephen Englander, when you say spillover, do you mean political spillover? Do you mean spillover when it comes to markets, how do you see it?

[Stephen Englander]

Well, I think in the first instance, 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. It's a little bit more delicate to try and intervene on French spreads when it's the French political crisis. But for the rest of Europe, I think the role is unambiguous.

[Interviewer]

I want to bring back in Stephen Carroll, who's in our Paris bureau. The far left France Unbowed party calls for Emmanuel Macron to resign. I know you've been getting caught up just in the last few minutes, Stephen. What sticks out to you as far as other names that potentially have emerged or what the political future of Macron is?

[Stephen Carroll]

I mean, look, 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. A person who very keenly would like him to resign, and we've seen that in the decision that she has made in supporting this no confidence motion, is Marine Le Pen. The far right candidate, of course, was the person who went up against Macron in the last two presidential elections. Her support has been growing slowly and the margin by which Emmanuel Macron defeated her in the last presidential elections was much smaller than in 2017. So she would very much like for there to be an early presidential election to get a chance for her to be able to get a shot at the presidency. Now, it's not unusual that we'll have that same call from the far left. They're actually one of the biggest groups in Parliament, so they know that they have also significant support. And that's been the story of how politics has evolved under Emmanuel Macron in power, as we've seen greater support for far right and far left parties as a result. Some of those other names that you mentioned for Prime Minister, I mentioned Barnac Kasnav a minute ago, the former Socialist Prime Minister and Interior Minister as well. Perhaps the left might be able to agree on him perhaps forming a government and that would open up the left side of the Parliament to be able to perhaps form a centrist coalition. Other ones that we have been talking about is the likes of Francois Bieroux, who was a centrist politician and early supporter of Emmanuel Macron, was way back when he ran for president the first time around as well, quite a similar profile in some ways to Michel Barnier, he's been around a long time in French politics. He has a certain amount of respect for the positions that he's had as well, and perhaps he could be someone who could draw people together, but he's not really outside of the current alliance that Macron's in. You think that because he's already tried Michel Barnier, someone who's already out of domestic politics, that perhaps he might be looking for someone a little bit bigger next time around that'll pull, pull in new votes and new support so that it'll be able to create some currency in Parliament as well.

[Interviewer]

Stephen Carroll, we're going to have to let you go. I know you've got a busy night ahead of you. We definitely appreciate you taking the time and joining us. That's Stephen Carroll of Bloomberg daybreak Europe. He's an anchor for Bloomberg Radio, joining us from Paris. I do want to get back to Stephen Englander, global head G10FX research at Standard Chartered bank, joining us from New York. The French stocks closing in on their worst year since 2010. Although the CAC 40 today seemed to shrug off this news, it rose 7. 10 of 1%. Can you talk about the equity market reaction around this at all?

[Stephen Englander]

Well, you know, I think there's just a lot of uncertainty there and, you know, obviously there will be pockets where maybe they were, you know, expecting some help from the budget and that's not going to come. But I think it's more broad macro uncertainties and there is any specific equity market risk. What we could see is right now the turnover budget is sort of an austerity budget. If it does turn out that they reach an agreement, but it's much more expansionary, we could see an equity market reaction, but we could also see markets looking at the fiscal situation and being a little concerned.

[Host/Announcer]

What about the outlook here for US vs Europe? We've obviously been watching euro parity. We're not there quite yet, but there's a lot of talk about the US Dollar continuing to strengthen against other countries, other regions, including Europe. What are you kind of watching levels wise, and does this news in France kind of change the narrative at all?

[Stephen Englander]

Well, I think it does put par, I mean, it obviously has put parity a little bit close. If anything, what's surprising, you know, my, 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. If something were to develop that really led to prolonged political uncertainty that would be much harsher. But I, I, you know, right till now the market is sort of is seeing it as a bad, but not as a very bad.

[Interviewer]

Stephen Englander, global head G10FX research at Standard Charter bank, joining us from New York.

[Host/Announcer]

How can you free your team from time consuming office tasks? Amazon Business empowers leaders to not only streamline purchasing, but better support their teams. Smart business buying tools enable buyers to find and purchase items fast so they can focus on strategy and growth. It's time to free up your teams and focus on your future. Learn more about the technology, insights and Support [e-mail] Every business has an ambition. PayPal Open is the platform designed to help you grow into yours with business loans so you can expand and access to hundreds of millions of PayPal customers worldwide. And your customers can pay all the ways they want with PayPal, Venmo pay later and all major cards so you can focus on scaling up when it's time to get growing. There's one platform for all business PayPal open grow today at paypalopen.com loans subject to approval in available locations.