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(Bloomberg) — Finance Minister Antoine Armand said France won\u2019t accept artificial budget deadlines from Marine Le Pen even as the far-right leader gave her strongest indication yet that she\u2019s prepared to topple the government as soon as this week.<\/p>\n
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Le Pen\u2019s National Rally has threatened to support a no-confidence motion unless Prime Minister Michel Barnier tweaks his 2025 budget to index pensions to inflation among other asks. The far-right leader told Barnier he needs to make the changes by Monday, which is when opposition lawmakers are expected to initiate the process to call the vote of no-confidence.<\/p>\n
\u201cThe French government doesn\u2019t take ultimatums,\u201d Armand said in an interview with Bloomberg Television on Sunday. \u201cWe won\u2019t be blackmailed.\u201d<\/p>\n
Bond investors have punished France\u2019s sovereign debt relative to its peers amid the political brinkmanship in Paris, pushing borrowing costs at one point last week as high as Greece\u2019s and leading Barnier to warn of a \u201cstorm\u201d in financial markets. The political difficulties and market jitters began in June when President Emmanuel Macron called snap elections in a bid to bring clarity in a National Assembly where his party was already short of an outright majority.<\/p>\n
Le Pen, who heads the single biggest party in the National Assembly, already scored a victory last week after Barnier agreed to abandon raising taxes on electricity, one of the National Rally\u2019s key demands. This emboldened the far-right party to add to its demands. A no-confidence vote could happen as soon as Wednesday.<\/p>\n
The euro slipped in early Asia trading Monday as investors reacted to Armand\u2019s comments. The common currency fell about 0.4% to around $1.054.<\/p>\n
\u201cThe French political turmoil is certainly not helping the euro,\u201d said Rodrigo Catril, strategist at National Australia Bank Ltd. in Sydney. \u201cAn actual collapse of the government via a successful vote of no confidence would add another layer of uncertainty.\u201d<\/p>\n
Barnier\u2019s budget legislation, which incorporates \u20ac60 billion ($63.5 billion) of adjustments, is an attempt to bring order to France\u2019s fiscal situation, with the country\u2019s deficit expected to reach 6.1% of economic output this year.<\/p>\n
Budget Minister Laurent Saint-Martin told Le Parisien newspaper over the weekend that requests to amend the budget would cost nearly \u20ac10 billion and that the government wouldn\u2019t make any further concessions.<\/p>\n
Le Pen lashed out at the comments, telling the AFP newswire that Barnier\u2019s administration \u201chas put an end to discussions.\u201d She has made clear that if her red lines aren\u2019t met then her party will join with the left to topple the government. National Rally President Jordan Bardella accused the government of putting its very existence at risk \u201cout of stubbornness and sectarianism.\u201d<\/p>\n
The far-right party\u2019s increasingly combative stance has encouraged investors to bet that Le Pen is preparing to push out the government.<\/p>\n
The yield premium between 10-year government bonds and safer German equivalents, a closely watched gauge of risk, recently touched 90 basis points \u2014 the widest since 2012 \u2014 before tightening back to around 80 basis points on Friday. France\u2019s benchmark equity index is on track for its worst year relative to European shares since 2010.<\/p>\n
France\u2019s 10-year bond yield last week briefly matched Greece\u2019s, a country once at the heart of the European sovereign debt crisis. Armand dismissed the comparison, saying France\u2019s economy is solid.<\/p>\n
\u201cGreece has done an incredible job after the crisis to reduce public spending,\u201d he said. \u201cBut France is not Greece. France\u2019s economy is not Greece\u2019s economy.\u201d<\/p>\n
What Bloomberg Economics Says…<\/p>\n
\u201cGetting the budget through parliament and the survival of Prime Minister Michel Barnier\u2019s cabinet will likely depend on the decisions of far-right politician Marine Le Pen.\u201d<\/p>\n
\u2014Antonio Barroso, Eleonora Mavroeidi. For full insight, click here.<\/p>\n
Macron\u2019s gamble with a snap election left the lower house split into three fiercely opposed blocs: a diminished center supporting the president, a leftist alliance and a strengthened far right led by Le Pen. With no coalition possible, Macron appointed Barnier prime minister in September with a core mission to get France\u2019s messy finances in order.<\/p>\n
Even before the political turbulence of the last several weeks, France\u2019s finances were a growing concern for investors as plans to reduce debt slipped off course at the end of 2024. With tax revenue far below estimates, the government now expects the budget deficit to reach 6.1% of economic output this year instead of declining to 4.4% as initially planned.<\/p>\n
Barnier\u2019s 2025 budget aims to narrow the gap to 5% with shock therapy of \u20ac60 billion of tax increases and spending cuts. In the interview, Armand insisted that wavering on the commitment to reduce the budget deficit toward 5% in 2025 and toward 3% to in 2029 was \u201cnot an option.\u201d<\/p>\n
\u201cWhat\u2019s my responsibility as a finance minister is to commit to the 5% target that we decided to have at the beginning of our mandate, not only for France or for the government because it\u2019s now needed in order that Europe stills remains a continent of prosperity,\u201d he said.<\/p>\n
There aren\u2019t precedents for a government collapsing so close to the end-year deadline for a budget. Still, lawmakers and legal experts have pointed to emergency measures that could permit the state to collect taxes and decrees to authorize minimal spending in order to avoid a shutdown.<\/p>\n
The National Rally has said it would support such an outcome, while ministers have warned it could inflict harmful austerity and impair efforts to repair finances. Le Pen also played down the consequences of having no budget by end year, telling the newspaper La Tribune that \u201cthe French system is well designed, and there\u2019s absolutely no reason to panic, because nothing is definitive.\u201d<\/p>\n
If Barnier is evicted from office, Macron would have to re-appoint him or pick a new premier. But the president would face the same difficult balancing act with no possibility for fresh legislative elections until July.<\/p>\n
Any new government that emerges would still need urgently to propose a 2025 budget.<\/p>\n
Armand sought to reassure investors, saying he\u2019s confident France will continue to reform its economy and attract investors.<\/p>\n
\u201cFrance is committed to keep this European leadership with Germany, with Italy, with Spain, with all European countries so that this growth agenda could be the best answer to the international and trade tensions that are going on now,\u201d he said.<\/p>\n
–With assistance from Ania Nussbaum, Benoit Berthelot and Ruth Carson.<\/p>\n
(Adds comment from currency strategist in seventh paragraph.)<\/p>\n
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