France on the Brink

The decision to keep Sébastien Lecornu as Prime Minister, heading a government expanded to include six former members of Les Républicains (Right) and eight senior civil servants, does nothing to ease the deep sense of instability weighing on French political life. Barely formed, this second Lecornu government already faces the double threat of censure: La France Insoumise (Far Left) and the Rassemblement National (Far Right) have each filed a motion, while the Socialist Party (Left) is considering introducing a third one after the presentation of the State and Social Security budgets on Tuesday.

The inaugural Council of Ministers, scheduled for 10 a.m. tomorrow, will mark the true baptism of fire for an executive under intense pressure. The Finance Bill  and the Social Security Funding Bill are to be presented there before being submitted to the National Assembly. Due to time constraints, the text will be identical to the version sent on October 2 to the High Council of Public Finances. It is a continuity budget, with little room for manoeuvre, reflecting both political constraint and market pressure.

Officially, the government maintains its goal of reducing the public deficit to below 5% of GDP by 2026, while confirming the European target of 3% by 2029. But the path to that goal has become steeper: growth has been revised down to 1%, and every tenth of a percentage point of additional deficit compounds a debt already above 114% of GDP. In the current environment, with French government bond yields (OATs) holding at 3.470% and the spread with the German Bund at 0.844%, even a minor budgetary misstep could reignite tensions on sovereign debt markets.

The Lecornu budget is shaped by enforced restraint. Six billion euros in savings are expected from reductions in state operating costs and social transfers. The Prime Minister has dropped certain controversial measures, such as the abolition of two public holidays proposed by François Bayrou, but he maintains a firm commitment to cutting the state’s standard of living.

On the fiscal front, Sébastien Lecornu has ruled out the “Zucman tax” demanded by the left, opting instead for a “tax on financial assets” held by family holdings, a measure expected to raise between €1 and €1.5 billion. He also plans to maintain the differential contribution on high incomes and to cut the corporate value-added tax, at an estimated cost of €1.1 billion. Additional adjustments include a modest income tax cut for lower-earning couples and a revised flat-rate deduction for wealthier pensioners.

On social policy, the Prime Minister has opened the door to a partial suspension of the pension reform : a key Socialist demand. Nonetheless, he remains committed to cutting healthcare spending, notably by doubling medical co-payments and tightening limits on sick leave. The proposed “white year,” freezing civil servants’ salaries and social benefits, would be renewed, while a targeted increase in women’s pensions is under consideration.

This patchwork of measures reflects the defensive posture of a government in survival mode. By combining fiscal discipline, selective tax concessions and cautious social policy, the administration hopes to contain market distrust without provoking public anger. But this is no longer an economic agenda, it is a last-ditch strategy.

France’s crisis is no longer merely fiscal; it has become systemic. The presidential majority, artificially broadened with fragile allies, struggles to conceal the erosion of the political center. The looming censure motions could well pave the way for the dissolution of the National Assembly in the coming weeks : a risky but increasingly inevitable step to restore a fading legitimacy.

Caught between political instability, financial fragility and democratic fatigue, France advances on the edge of the abyss. “Too big to fail,” it must now prove that it remains capable of governing, reforming and persuading. Otherwise, it risks becoming a democracy suspended between the impatience of the markets and the weariness of its citizens.

As long as politics is confined to managing crises rather than overcoming them, the Republic will remain on the brink of rupture.

Matéis Mouflet, Market Analyst, XTB