(Bloomberg) -- Far-right leader Marine Le Pen, who holds outsize leverage in France’s split parliament, gave Prime Minister Michel Barnier until Monday to accede to her budget demands before she decides whether to topple the government.
Le Pen’s National Rally is demanding that Barnier tweak his 2025 budget plans, which incorporates €60 billion ($63.5 billion) of fiscal adjustments, to abandon a proposal to reduce drug reimbursements, call a moratorium on new or higher taxes on most individuals, to index pensions to inflation from Jan. 1 and to enact tougher migration and crime policies.
Barnier, who agreed yesterday to abandon plans to raise taxes on electricity, one of the National Rally’ key demands, will need to push through the social security portion of the new budget as soon as Monday. Opposition lawmakers on the left have threatened to table a no-confidence motion once that happens, and if the National Rally decides to support the move then the government could fall by Wednesday.
“There are still difficulties,” Le Pen said of Barnier’s budget in remarks to Le Monde. “He has until Monday.”
The budget debate has prompted investors to sell some of the nation’s assets.
National Rally President Jordan Bardella claimed “a victory” following Barnier’s change of course on the key electricity concession and followed up with more demands. He wrote on the social media platform X that other red lines remain and “we can’t just stop there.”
Bardella also called on Barnier to boost competitiveness for small- and medium-sized companies.
“These sensible measures are realistic, can be applied rapidly and are expected by the vast majority of French people,” Bardella wrote. “The prime minister can’t remain deaf to them. He has a few days left.”
Le Pen told Le Monde she still intends to vote for the censure of the government as early as next week, in the event it applies article 49.3 of the Constitution to pass the social security financing bill.
“We want to find compromises,” French government spokeswoman Maud Bregeon said on France 2 Friday. “Does the National Rally want to truly pass a budget, or set France up on a collision course for disaster?”
What Bloomberg Economics Says...
“With the premium France pays to borrow drifting northward, how far-right politician Marine Le Pen handles the budget negotiations will be key.”
—Eleonora Mavroeidi. For full insight, click here.
The current crisis began in June when President Emmanuel Macron called snap elections in a bid to bring clarity in a National Assembly where his party was already short of an outright majority.
The gamble backfired, leaving the lower house split into three fiercely opposed blocs: A diminished center supporting the president, a leftist alliance, and a strengthened far-right led by Le Pen.
The prospect of a no-confidence vote has pushed investors to sell French assets, driving up the country’s borrowing costs compared with European peers.
France’s 10-year yield premium over Germany, a closely watched gauge of risk, rose Friday to about 84 basis points. It’s been roller-coaster week for the spread, which touched 90 basis points — the widest since 2012 — before winning some respite after Barnier conceded to one of Le Pen’s demands.
French bonds fell across the curve, with shorter notes leading the drop. The 10-year yield was one basis point higher at 2.96%, underperforming peers.
S&P Global Ratings is set to review its credit rating of France late Friday. It cut its assessment of the country to AA- in late May — three notches below the top grade — citing its budget deficit. Since then, the situation has only deteriorated, and last month, both Fitch and Moody’s responded to the turmoil by putting negative outlooks on their ratings and Scope downgraded.
France’s fiscal situation also is something that’s been worrying the country’s central bank chief, Francois Villeroy de Galhau.
“I think in the past two years the deficit has gone off track,” he said on Friday in Dijon. “If we want to reduce the deficit it’s very simple, like people living above their means we can either cut expenses or increase our revenue,” he said, adding that “in the past I’ve said that you mainly need to cut expenses.”
--With assistance from Jenny Che, Alice Gledhill, Zoe Schneeweiss and Alessandra Migliaccio.
(Updates with Villeroy comments in final three paragraph)
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