The clouds over the economy that caused Bayrou's defeat

BarcelonaHas the weakness of the economy led France to a political crisis? Or is it the other way around, and the political crisis has weakened the economy? Be that as it may, the second-largest economy in the European Union and the seventh-largest in the world is not going through its best of times, and storm clouds are brewing. Very weak growth in gross domestic product (GDP), rising debt, and a widening deficit are indicators of a weakening economy, as shown by the evolution of the risk premium in recent months.

The truth is that, as of this Monday, the political crisis has become complete. Prime Minister François Bayrou has lost the vote of no confidence he had submitted to the French National Assembly, precisely to receive support or disapproval—and which implies his resignation—for his economic shock plan to refloat a France that also faces other threats on the horizon, such as the need to make cuts to try to make Trump sustainable, and the resulting rise in the price of French products (some as renowned as wine and champagne) on international markets. The latest threat is the European Union's trade agreement with Mercosur, which has put French farmers on a war footing.

The Paris Stock Exchange, renamed Euronext Paris, like its benchmark index, the CAC 40—which brings together the 40 largest-cap companies on the French market—has had a quiet day and even closed in the green before Bayrou lost the vote of no confidence, which was the vote of no confidence.

The survival of the country is at stake.

The alarm was raised last April by Bayrou himself, when he warned of the catastrophic state of the country's economy, over-indebted, with insufficient production, and a job market below its competitors, necessitating an emergency plan. Bayrou, accompanied by a large number of his ministers, asserted that the country's situation is worsened by international crises, which are forcing an increase in defense efforts, and by the trade war launched by President Donald Trump. "The survival of the country is at stake," warned the head of the executive branch, who brought together parliamentarians, social partners, associations, local authorities, and social security authorities to seek lasting solutions to this crisis before the summer.

Bayrou also appealed directly to the public, amid the precarious parliamentary system and criticism from the opposition: "Only the awareness of our citizens can support public action," he asserted. The prime minister, who had already had to make concessions to the Socialists and the far right for the 2025 budget, called for further austerity and popular support due to a lack of politicians.

Economy Minister Éric Lombard estimated the necessary adjustment to next year's budget at €40 billion to keep the public deficit at 4.6% of GDP, after the 5.4% expected this year. Bayrou painted a catastrophic picture, that of a France that "doesn't produce enough and doesn't work enough," but which has "the highest level of public spending in the world," which generates no satisfaction among citizens but translates into debt that threatens to strangle the country. A situation aggravated by recent crises, from the invasion of Ukraine, which will require a €3 billion increase in defense spending, to Trump's trade war.

Complicated public finances

But what is the reality of the French economy? France is the world's seventh-largest economy (according to 2024 International Monetary Fund data). Last year, France's GDP grew by 1.1%, matching the 2023 rate. A rebound in economic activity is expected in 2026, with GDP growth of 1.1%, due to the reduction in fiscal adjustments and lower credit costs. Growth will be driven by private domestic demand, as the savings rate declines and private investment benefits from monetary easing. Regarding public finances, the fiscal deficit was estimated at 6.1% of GDP in 2024, compared to 5.5% in 2023. The fiscal consolidation measures announced for 2025 amount to 1.4% of GDP. Interest payments will increase by 0.3 percentage points. After falling to 109.9% of GDP in 2023, public debt is estimated to rise to 112.3% in 2024. It is expected to continue to rise gradually, reaching 117.6% in 2026 (IMF).

Despite the clouds over the economy, the labor market is strong. The unemployment rate, slightly above 7%, was close to its lowest level since 2008 at the end of 2024, while the employment rate reached a record high of 74.7%. According to data from INSEE (the French statistical institute), the number of unemployed people decreased by 63,000 people in the fourth quarter of 2024 compared to the previous quarter and reached 2.3 million, resulting in an unemployment rate of 7.3% for the year.

But despite these prospects, GDP grew by 0.3% in the second quarter of this year, above expectations, according to INSEE. And not everyone sees the storm as so close. Economists Philippe Dessertine and Mathieu Plane said so in FranceinfoThe crisis is more political than economic. Philippe Dessertine, a finance specialist and professor at the University of Paris 1, warned of the high public debt, but added that "we don't know where the precipice is." "I think we need to be very clear," the financial specialist continued. "In addition to the technical aspect and the risk of falling off the cliff, there is political disorder that looks set to last at least two years, until 2027. I think we have to say yes, the precipice is upon us."

On the other hand, economist Mathieu Plane believes the situation is worrying "because there is a major political crisis and a very high and unsustainable deficit." However, the economist believes that France is not "in an economic crisis," but "in a political crisis." "France has a budgetary problem that it must resolve," he emphasized.