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Prime Minister Michel Barnier has warned the far-right opposition against acting recklessly in a budget stand-off that has pushed up the cost of France’s borrowing and could bring down its government.
The French premier on Thursday said he would scrap a plan to increase taxes on electricity, meeting one of the Rassemblement National’s demands. But Marine Le Pen’s party has insisted all its “red line” demands must be met if the government wants to avoid a no-confidence vote as soon as next week.
“Do Le Pen and the RN really want to pass a budget for France? Or do [they] want to send France into the wall?” government spokesperson Maud Bregeon said on TV channel France 2 on Friday, adding that “it takes two to find compromises” after the prime minister made a “major concession” on the electricity tax.
Rating agency S&P is due to make a decision on the country’s debt rating late on Friday. France’s borrowing costs this week briefly rose above those of Greece for the first time, as investors worry the government could fail to pass a belt-tightening budget with €60bn of tax increases and spending cuts.
The budget’s fate and that of Barnier’s administration remain largely in the hands of the RN, which is the biggest single party and a key voting bloc in the National Assembly.
The RN has made clear that it plans to keep up the pressure. “There are still difficulties. It’s Thursday. He has until Monday,” Le Pen warned in Le Monde newspaper on Thursday night.
RN party leader Jordan Bardella hailed the government’s climbdown on the electricity tax as a “victory” but reiterated the party’s demands to protect the purchasing power of the public, particularly retirees, and to enact a “serious crackdown” on migration and crime.
The government has tried to push back on the ground the RN is attempting to claim. “Purchasing power is a concern of the RN, but it is a cause that is shared by all MPs today. It is not the sole reserve of Marine Le Pen,” Bregeon said.
Barnier also said he wanted to “significantly” reduce the care covered by state medical insurance to which undocumented immigrants are entitled — a partial acquiescence to RN demands.
Investor anxiety pushed a measure of France’s creditworthiness — the additional interest rate demanded by its investors compared with benchmark German debt — to a 12-year high on Wednesday at 0.9 percentage points on the 10-year bond. It has since fallen back to 0.83 percentage points after the bonds regained some ground on Thursday.
Kevin Thozet, an investment committee member at French fund manager Carmignac, said the “key risk” for bondholders was an “institutional crisis” in a scenario where government instability ultimately led to the resignation of President Emmanuel Macron and early presidential elections.
The increased political uncertainty also ratchets up concerns that the government will fail to achieve its goals for the budget, namely bringing the deficit back to 5 per cent of national output by the end of 2025.
The country’s deficit is set to expand to above 6 per cent of GDP this year, far above the EU’s limit of 3 per cent.