https://www.americanthinker.com/blog/2025/09/the_french_government_fails.html
After only nine months in office, President Emmanuel Macron’s fourth government has collapsed. Prime Minister François Bayrou lost Monday evening’s confidence vote on his austerity budget by 364 to 194 votes. Bayrou announced his resignation for Tuesday. While markets largely remained calm, this does not mean France’s debt crisis has been postponed.
Bayrou Acknowledged the Severity of the Situation
Bayrou took responsibility for the dire state of French public finances and attempted to impose a fiscal consolidation program. With public debt at 114% of GDP and a net borrowing forecast of 5.4% for this year, the plan included €44 billion in spending cuts, frozen pensions, and the reduction of two public holidays — measures intended as a lifeline for the struggling economy.
Both the parliamentary majority and broad segments of French society fundamentally opposed the reform program. Another general strike is already looming.
With Bayrou’s resignation, the wavering Emmanuel Macron faces the task of appointing a fifth prime minister in two years. Until the upcoming elections in April 2027, any government, regardless of composition, will confront the same problems. Any form of fiscal consolidation will be torpedoed by entrenched political factions. France is stuck in a political deadlock, making debt consolidation seem impossible.
The Road to Disaster
This bizarre situation reveals that France’s political elite — and increasingly across all EU states under debt pressure — can no longer put economic necessity above ideological divides. The lost confidence vote is another nail in the EU’s coffin and will soon manifest in markets as a problem for the Eurozone, as investors realize France’s political impotence.
In recent days, Bayrou openly criticized the French lifestyle, identifying the welfare state as a core problem. He now experiences firsthand that anyone challenging the numerous privileges of the sprawling welfare system is ruthlessly punished. France defends its transfer society as a national sacred cow, even though this stance leads straight into fiscal catastrophe.
Europe’s Contagion Risk
For financial markets, the events in Paris are not good news. France’s “OATs” — Treasury bonds — showed little immediate reaction to the government’s collapse. Yet they had been under increasing pressure in recent weeks amid the brewing sovereign crisis. Yields rose, and the spread to German Bunds — Europe’s benchmark — widened to as much as 90 basis points, signaling risk.
French government bonds are now trading with a significant risk premium, much like UK debt. Contagion risk looms for the Eurozone if markets turn to other high-debt nations such as Spain, Italy, or Greece, potentially triggering a chain reaction reminiscent of the prior sovereign debt crisis.