(Bloomberg) -- Marine Le Pen pledged to topple Prime Minister Michel Barnier’s government after he failed to meet her demands on a new budget, threatening financial and political disruption for France.
Barnier on Monday invoked a constitutional mechanism that allows for his social security bill to be adopted without a vote, but opens the door to no-confidence motions. Le Pen said her far-right National Rally party would join a left-wing bloc to support dissolving the government, all but ensuring that outcome.
The National Rally is the largest party in the lower house of parliament, making Le Pen the most influential power broker in Paris. Even though Barnier agreed to nearly all her demands to tweak the budget legislation, Le Pen said she wouldn’t back the bill because of the government’s refusal to adjust pension payment increases.
“Barnier did not wish to respond to the request of the 11 million National Rally voters,” Le Pen told reporters after the announcement. “He said that everyone should shoulder their responsibilities, so we will shoulder ours.”
Barnier was always likely to need to use the constitutional mechanism, called Article 49.3, to pass the budget because he is far short of having a majority in the National Assembly. But the timing is particularly hazardous for France’s finances as the government must adopt a budget by year-end or use untested emergency legislation to avoid a shutdown.
The French premier sought to appease Le Pen in the 11th hour, abandoning a proposal to reduce drug reimbursements after already caving to her demand last week not to raise taxes on electricity.
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“Le Pen might prefer political chaos to stability to put pressure on Macron to resign.”
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But he did not give in on the government plan to make significant savings by delaying the indexations of pensions to inflation. The National Rally submitted an amendment to crush the measure, but it was not integrated in time, according to a budget ministry official.
“I exhausted dialog with all political parties, while always remaining open and listening,” Barnier said. “From the first day of my life in politics I have respected debate and a culture of compromise.”
The uncertainty around the budget has pushed bond investors to punish France’s sovereign debt relative to its peers, driving up borrowing costs at one point last week as high as Greece’s and leading Barnier to warn of a “storm” in financial markets if he is dismissed from power.
The spread between 10-year French and German notes was eight basis points wider on the day at 89 basis points, nearing the highest level since 2012 and on course for the largest widening move since June. The CAC 40 Index traded 0.4% lower, while the euro tumbled more than 1%.
Investors have fretted for months over France’s political difficulties, just as the government has been trying to push measures that will reduce its unwieldy deficit. The budget bill initially presented by Barnier’s government contained €60 billion ($62.8 billion) of tax increases and spending cuts that aimed for a sharp adjustment in the deficit to 5% of economic output in 2025 from an estimated 6.1% this year.
Budget Minister Laurent Saint-Martin told Le Parisien newspaper over the weekend that requests to amend the budget would cost nearly €10 billion.
The National Rally has slammed broad swathes of the plans that it sees as potentially harming household incomes.
“There is no way out for a government that reconnects with the thread of Macronism, which refuses to take into account the social emergency at the end of the month and which ignores the need to relaunch growth,” National Rally President Jordan Bardella wrote on X after the announcement.
After opposition groups submit no-confidence motions, 48 hours must elapse before parliament begins to debate the proposal and a no-confidence ballot must take place within three days of that.
If the government is voted down, ministers remain in place with a caretaker status to manage current affairs, potentially including the emergency legislation to avoid a shutdown. It would then be up to President Emmanuel Macron to appoint a new prime minister, although there is no constitutional deadline for his decision.
While the left has called on Macron to resign, he can’t be forced out of his job. The next presidential election is set for 2027 and Le Pen remains the frontrunner, according to polls.
The president could also dissolve parliament again, but not until July, a year after the previous elections.
(Updates with markets from the ninth paragraph.)
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