(Bloomberg) -- French Finance Minister Antoine Armand said he’s prepared to make concessions on the 2025 budget bill to avoid opposition parties bringing down the government.
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“The question is whether it’s better to have a budget that is not exactly the one we want or no budget,” Armand said on RMC radio on Thursday. “Obviously it’s better to work on a budget that is not exactly the same, otherwise we leap into the unknown.”
Prime Minister Michel Barnier’s administration risks being toppled in the coming weeks as opposition lawmakers threaten to unite in no-confidence votes over its fiscal plans. The left has pledged to table such a motion as soon as next week, leaving Barnier’s fate in the hands of Marine Le Pen’s National Rally party, which would have the casting votes.
The prospect has pushed investors to sell French assets, driving up the country’s borrowing costs compared with European peers. The rate on 10-year French notes matched Greece’s for the first time on record on Thursday.
“We are faced with an immense responsibility today to provide a budget for the country,” Armand said. “There is the other path that leads to the unknown, to downgrade and the dislocation of the country.”
Following Armand’s comments, the French bond yield over Germany narrowed as much as three basis points to 83, though it was back at 85 again by 11 a.m. Paris time. The spread widened to as much as 90 basis points on Wednesday as investors priced in a higher chance of parliament voting down the budget.
While Armand didn’t specify the degree of concessions the government is willing to make, he confirmed that Barnier is ready to change plans to raise taxes on electricity that Le Pen has slammed. She has also demanded a modification of measures to curb pensions expenditure and reduce state reimbursement of medicines.
What Bloomberg Economics Says...
“The government’s struggle to pass a budget for 2025 is spooking investors - even Antoine Armand, the finance minister, is flagging the danger. Frankly, there’s plenty more to worry about. The government’s fiscal plans are centered on a multi-year austerity program that will be extremely difficult to implement — we think it likely that debt will significantly overshoot the path outlined by the European Commission.”
—Eleonora Mavroeidi (Economist), click here for full INSIGHT
The finance minister said the administration is open to finding other ways to replace tax increases with spending cuts to try to preserve business investment.
“We are prepared to make measured concessions in all areas,” Armand said.
The social security bill will return to the National Assembly on Monday and the whole budget around Dec. 18 after debate concludes in the Senate. Barnier can still make changes to the texts before using article 49.3 of the constitution to adopt the bill without a vote. Using that tool opens the door to no-confidence motions.
“Only the government can amend the bill,” National Rally lawmaker Sebastien Chenu said on LCI TV on Thursday. “Between now and next week, the prime minister can chose to make some concessions, change the text, backpedal, and listen to what we’re saying.”
--With assistance from Alice Gledhill.
(Updates with finance minister comments starting in seventh paragraph.)
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