The Big Take: What’s Next After French Government Falls
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I'm Stephen Carroll coming to you from Paris this week as we've been covering the turmoil in French politics. Instead of our usual Here's Why, this week we wanted to bring you an episode of Bloomberg's Big Take podcast. I joined host David Gurra to talk about what's been going on in France and what might happen next. I'll be back with a new episode of Here's Why next week. But for now, here's the Big Take.

Bloomberg Audio Studios. Podcasts, radio, news. In France on Wednesday, President Emmanuel Macron's government lost a no-confidence vote.

Politicians on the right and the left called for that vote and supported it after Prime Minister Michel Barnier pushed through a budget without parliamentary support. Crisis on the brink as France's government faces a vote of no confidence. Barnier has recently forced through a budget bill without a vote. Is collapse now imminent for this French government?

Well, that no-confidence vote effectively ended Barnier's short tenure as prime minister. Barnier addressed the nation just before the vote, calling it an honor to have served with dignity France and its people. He'd been on the job for just under three months. I want to tell you that it will remain an honor for me to have served with dignity France and the French.

Today, there are a lot of questions about the future. Big ones. About President Macron's prospects. What happens to his political party? And what's next for France? No government has fallen to one of these motions of no confidence since 1962. Bloomberg's Stephen Carroll has been in Paris to cover the vote and its fallout. That time around, it was solved by calling early parliamentary elections. But this time around, President Macron doesn't have that option.

because he already did it this year, putting France into the political and potentially economic unknown. I'm David Gurra, and this is The Big Take from Bloomberg News. Today on the show, turbulence and uncertainty in France after the government was toppled. What led to the vote, and what do we know about what comes next? Moments after the vote, I caught up with Bloomberg's Stephen Carroll, asked him to walk us through what happened.

Get us up to speed here. What was the outcome of the vote? Well, look, Michel Barnier has added an unhappy record to his long career. That is, he is the shortest serving prime minister in modern French political history. Just two months and 29 days in office as he was felled by a vote of no confidence in Parliament. 331 deputies voted against him. They needed 288 for the motion to pass.

Stephen, mark this moment for us. You're kind of nodding to the historic nature of this. What does it mean for the country moving forward? It plunges France into a relative political unknown. I say relative because this has happened once before in 1962, but the way out of that particular crisis was calling early legislative elections. Emmanuel Macron doesn't have that choice.

this time around because he did that last June, which means he can't call new ones until next July. So for the moment, it means that France has no government. There will be caretaker ministers in place. Emmanuel Macron needs to find somebody new to take on the impossible challenge.

as it now looks, of being Prime Minister and trying to cobble together some sort of working majority or minority in Parliament, which on the maths looks very difficult. There isn't an easy constituency to win over. So that means no policymaking for the moment, no budget

for 2025. Once we go past the 31st of December, we get into a special arrangement where essentially the French government keeps the lights on and works month to month. That could potentially cause further concerns on markets, but also it could see them falling foul of the European Union. It's already under watch for what the EU calls an excessive deficit procedure because its deficit is too high. Well, that deficit's going to get even bigger now.

This, of course, was something of great popular interest, of interest to investors as well. I know you've been paying attention to that. What was the market reaction in the run-up to the vote, and what have we seen since? Well, look, in the days running up to it, there were a number of, again, unhappy records that we saw on French markets. So the spread of borrowing costs between France and Germany widened to the most since 2012. That was the height of the Eurozone crisis. And it's always the way that we

think about debt in the euro area. Germany is considered the safest bet, so the further away you are from Germany when it comes to borrowing costs, essentially the worst perception that investors have on you. Now, our colleagues who are experts in the markets will also point out that France's 10-year borrowing cost is still below 3%. It's

2.9% are in and around there. And that still means that if you're going to get a mortgage in France, you're still going to get a pretty good rate on a fixed rate mortgage because French mortgages are fixed for the whole lifetime of around 3%, which looks pretty good if you're sitting in the UK or in the US. The other reaction that we've seen on markets has been

in the Euro weakening further, but difficult to unpick exactly how much of that is around France because dollar strength has been such a theme of recent weeks as well. We've got the Euro hovering around 1.05 and you do have to look for some further sort of more outlandish calls for anyone who sees that going back to parity, at least in the short term.

The actual reaction once the vote happened, a bit of a shrug from markets. They'd seen it coming. We're not expecting any major moves on the back of that. We'll be watching French equities to see if French banks are put under further pressure. Stephen, this vote came after a string of speeches. What did we hear in the run up to the vote? Who were the key players who spoke and what did you take away from what they had to say?

So we heard from the leader of the far left party in Parliament, Éric Coquerel, and also from Marine Le Pen from the far right. They were very keen to point to this being an unfair budget, a budget that was not what they wanted to see from a government, and as they saw it, hurting the French people.

Lots of rhetoric and high rhetoric, as you'd expect from French politicians when given this sort of pulpit, knowing well that they had the numbers to topple Michel Barnier. Michel Barnier himself had the chance to defend himself in Parliament before the vote was called, calling this a moment of truth and a moment of responsibility for the country. Introduce us to Barnier. What's his background? Why did Macron choose him as Prime Minister?

Michel Barnier has been a fixture of French politics for some 50 years. It was the late 70s when he was first elected as an MP for the Haute-Savoie region, where he's from, and around the French Alps. And he's someone who's served as a minister in previous governments. He was a member of the centre-right Republicans' party here in France. He went on to a career in the European Union as a European commissioner and also the EU's chief negotiator

on Brexit. He was a bit of a surprise choice for Emmanuel Macron to bring in as Prime Minister. They're not from the same political family,

But in Michel Barnier, he was looking for somebody who was perhaps not in the fray of day-to-day politics, someone who might be able to bring together forces that weren't traditionally inclined to support Emmanuel Macron's group in Parliament and also leaning into his legendary negotiation skills. We learned this during Brexit, that he was an extremely established

astute negotiator. He used the phrase so often during the Brexit negotiations that time is ticking. And really time was ticking for Michel Barnier from the moment that he took up this job in September. He felt he'd achieved the best compromise possible, but didn't have the numbers to vote it through. And that's what's led us to this no confidence vote.

In his speech, Michel Barnier said he was sure that the no-confidence vote would, quote, make everything more severe and harder. Coming up, the fiscal and political problems France is facing and what's likely to happen next. There are two kinds of people in the world. People who think about climate change and people who are doing something about it. On the Zero podcast, we talk to both kinds of people. People you've heard of, like Bill Gates. I'm looking at what the world has to do to get to zero, not

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France's government has lost a no-confidence vote, the first one in decades. I called up Bloomberg's Stephen Carroll and asked him to explain how we got here and what this outcome means. What kicked all this off was that decision by Prime Minister Michel Barnier to push through a budget for 2025 without parliamentary support. That is what led to Wednesday's vote.

What made this budget, the budget that Michel Barnier pushed through Parliament, so unpopular? So it wasn't an easy task to begin with. There were lots of individually unpopular measures in this to do with the reimbursement of medical costs provided by the state currently. And most controversially was this idea of pensions in France, state pensions go up every year in line with inflation. And one of the things Michel Barnier tried to do to save money was delay that increase

increase for pensioners that would have been due to come into force from the 1st of January until later in the year, essentially just trying to save a bit of money by implementing that increase a bit later on. And that was one of the red lines that Marine Le Pen had in her negotiations with Michel Barnier running up to this particular crisis point.

And that's proved to be one of the most controversial measures that he was trying to pass. On the heels of this no-confidence vote, President Macron can't call for another special election until next summer. What is likely to happen next year? There are a couple of deadlines that we have to worry about. One of them is that the budget needs to be passed by the end of the year. Now, there isn't a US-style government shutdown on the cards for France, but it does enter relatively untested territory where there is an emergency provision which allows citizens

taxes to be collected, minimum services to be provided, welfare benefits to be paid, for example, but will make things very difficult in the running of the country because it's essentially just maintaining the nature and the business of the state without being able to make any strategic decisions.

Stephen says the outcome of the no-confidence vote has also raised questions about what's next for the far-right leader Marine Le Pen and the National Rally Party. She's been building her political capital in France, you know, for more than 10 years, essentially trying to make a bid for the presidency. She came pretty close last time around. Now, Emmanuel Macron's term runs until 2027. He's shown no signs that he will resign early.

Marine Le Pen herself is facing a court decision that's due to come in March of next year, which could see her barred from running in future elections. Le Pen and National Rally have been accused of embezzlement, of misappropriating funds from the European Union. She denies all wrongdoing. But prosecutors have asked a judge to ban Le Pen from holding public office for five years.

That's something that could be preying on her mind as if she's trying to force Emmanuel Macron to call an early presidential election, something that he can still do. Looks very unlikely at this point, but that's one theory that's being bandied around by French political commentators, that perhaps Marine Le Pen has decided to cash in the chips of her political capital and try and force Emmanuel Macron into an impossible situation.

Stephen, as you say, Macron is resisting any calls to resign early. What does this mean for him and for his party? It puts them in a very difficult position. There are a number of figures who are lining up to try and replace Emmanuel Macron as the presidential candidate for his party in 2027 because he'll have served his maximum number of terms as president.

But it's very difficult to see who their constituency will be by that time. This budget crisis has reminded voters and politicians that there are other parties out there, there are other political forces at play, and for now they look more powerful.

So how a government can proceed between now and 2027 is very unclear. What can they do? What compromises would that government have to make with Marine Le Pen's party or with the left-wing parties to try and pass a budget and continuing even minimum functioning?

One possibility, Stephen says, is that the next prime minister could choose to build an alliance with the Socialist Party. They picked up a lot of seats in the last election and they represent one of the biggest parts of this left-wing alliance. The difficulty will be trying to convince them to separate themselves from the hard-left parties and potentially sign their own political death sentence by going into power with the centrists.

and the centre-right. There'll be many people in that party who would be wary of this as an option. But looking at the numbers, really it does seem like the most likely option if you were to try and build a coalition. Of course, plenty of convincing to be done there. But even in the rhetoric that we heard

from lawmakers from Macron's party in the days running up to this no-confidence vote. They mention over and over again the stalwart reputation of the Socialist Party in French politics and their long history of government. They're trying to appeal to them to peel away from that left-wing alliance and join into something that could form a functional government

For the moment, that's the only option that looks possible without some major political shifts from the parties involved. We've talked about what this means for politicians and political parties. How about for the country itself? People in France are worried about, like everywhere else, the cost of living and public services. There's very little hope out there that this impasse, however it is resolved, will actually lead to people's needs being addressed, their wants being addressed, but

by the next government. It's very difficult to try and see how someone, any political figure, could inspire the sort of hope that Emmanuel Macron did when he arrived into the presidential race late in 2017. That sort of uniting figure hasn't been found really by any party

in recent elections. Marine Le Pen has a large constituency on the right. Jean-Luc Mélenchon has a large constituency on the far left, but neither have been quite big enough to either break through and make it to the presidency or to be able to form a sufficient number of alliances in Parliament

to become a prime minister. This leads to an interesting question about who will own the centre by the end of this political cycle. There are plenty of players out there, but there's still a lot of questions about how anyone can win over and address the concerns that French people have about their future in a more uncertain world.

This is The Big Take from Bloomberg News. I'm David Gurra. This episode was produced by David Fox. It was edited by Tracy Samuelson and Fergal O'Brien. It was fact-checked by Adriana Tapia and mixed and sound designed by Alex Segura. Our senior producer is Naomi Chavon. Our senior editor is Elizabeth Ponso. Our executive producer is Nicole Beamster-Boer. Sage Bauman is Bloomberg's head of podcasts.

If you like this episode, make sure to subscribe and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow. What could you do if your data was working for you and not against you?

With Bloomberg delivering enterprise data directly to your systems, you get easy access to the details you want, optimized for higher-level analysis, and financial data experts committed to helping you maximize your every move. Our data is made for more, so you can show the world what you're made of. Visit Bloomberg.com slash enterprise data to learn more.