French Political Turmoil Amidst Budgetaryโ Concerns
A deepening rift is emerging within the Les Republicains (LR) party in france, as President Eric Ciotti, who recently โallied with Marine Le Pen‘s Rassemblement national (RN), is attempting to forge a lasting โขright-wing alliance. Ciotti has proposed a meeting with his successor, โBruno Retailleau, to “lay the foundations for a reversal โof the alliance”โฃ with theโฃ RN. He accused LRโ deputies of being โฃ”hostages of the Socialist Party”โ for supporting the government, โคechoing similar sentiments expressed by Retailleau who labelled โthe โLecornu government as “hostage to the socialists” following the suspension of pension reform. Ciotti emphasized the need to “extinguishโข macronismโฃ and repel the left,” aligning himself with Retailleau,who is facing opposition from other party members,includingโข Laurent wauquiez,who opted against censuring the government.
This internal political struggle unfolds against a backdropโค of significantโฃ budgetary challenges. The recently published state Budget requires France โฃto borrow 310 billionโค euros in โ2026โข to cover the public deficit and refinance existing debt.This represents approximately 10.1% โof the country’s GDP, a figure consistent withโฃ 2025 โand lower than the 11.2% peak reached during the 2020 Covid crisis. While the budget โฃdebate has โคyet to begin,France has receivedโข a surprising degree of stability in financial markets.
Despiteโ a public debt-to-GDP ratio โขnearing 115% and a deficit exceeding 5%, the International Monetary Fund (IMF) believes France’s financial โคsituation is notโ currentlyโข impacting โฃthe broader European financialโข system. Tobias Adrian, head of theโ IMF’s Financialโ Markets department, noted the current situation โdiffers considerably from the 2014 European debt crisis, which heavily impacted Greece, Italy, and โPortugal.
while the spread – the difference in yield between French and German ten-yearโข bonds (germany being the EU benchmark) – โฃhas increased sinceโ 2022, reaching 0.89 percentage points in early October, Adrian characterized itโฃ as “quite contained.” He attributed theโข increase to political โuncertainties but emphasized a “limited impact โon the price of French bonds” and noted no similar issues inโค other European countries,โข despite rising interest rates across the Eurozone.
Recent โmarket activity suggests easing tensions. On Tuesday, interest rates on french debt decreased; the 10-year rate fell to 3.41% from 3.47% the previous day, โwhile the German equivalent dropped to 2.61%โ from 2.64%. โConsequently, the โspread narrowedโค to 0.80โฃ points, even reaching 0.79 points following the Prime Minister’s speechโค – the lowest level since September 16th. This represents a decrease from the 0.85 point spreadโฃ observed after Sรฉbastien Lecornu’s resignation on october 6th.
