France: Minority Government May Mitigate Risk of Fiscal Slippage, but Reforms Unlikely

The inconclusive outcome of the snap legislative elections called by President Emmanuel Macron reduces the likelihood that the next government of France will implement an ambitious fiscal consolidation and reform agenda to tackle the country’s economic challenges.

While the left-wing Nouveau Front Populaire (NFP) coalition won the most seats in the National Assembly (182 out of 577), the direction of future economic policy still depends on who President Macron accepts as the next prime minister.

Divisions within the NFP, with the stronger-than-expected performance of the more centrist Socialist and Green parties compared with the radical left represented by La France Insoumise and the Communist Party (Figure 1), may point to the appointment of a centre-left prime minister. Such a move could result in a more stable minority government if backed by parties ranging from the social democrats to the centre right. The likelihood of extreme political forces uniting against such a minority government could also be lower.

Figure 1. Left-wing alliance rebalanced from radical- to centre-left

Number of seats, National Assembly (France)

Broad-based Coalition Would Reduce Risk of Costly Pension and Wage Reforms

A broad-based centre-left led government would likely water down, if not abandon, some of the costliest measures proposed by the radical left, notably lowering the retirement age – reversing President Macron’s flagship reform – and increasing the minimum wage.

Conversely, an administration under greater influence of the radical left would likely push for a more expansionist fiscal policy. However, we expect any such government to face significant hurdles, firstly within the left-wing coalition itself, but also from the opposition. This is because opposition parties could easily reach an absolute majority of 289 seats to pass a vote of no confidence, for instance, during debates this autumn about next year’s budget.

An alternative to a left-leaning coalition government could be an alliance between President Macron’s centrist coalition and the liberal conservative party. However, the reluctance of Les Républicains (66 seats) to support President Macron in the previous parliament suggests the chance of this alternative is relatively remote. Such an alliance would also challenge the left-wing tilt of French voters in the elections to keep the far-right Rassemblement National and allies (143) out of power.

Forming a Grand Coalition Would Test France’s Ability for Political Pragmatism

Forming a government with an outright majority of 289 seats will require a grand coalition between the centrist presidential, socialist and liberal conservative parties. This would imply centre-left parties abandoning previous alliances with the radical-left, a major shift from pre-election positioning.

Reaching a workable coalition for any centre-left or centre-right prime minister will thus depend on striking a delicate balance across the political spectrum in a country that lacks a history of coalition building common in many European countries, including Germany and Belgium.

Finally, if a government led by the radical left prove unworkable or no political agreement is found for a centrist alternative, President Macron would likely appoint a technocratic government that would remain in place until the next legislative elections, which can be called for June 2025 at the earliest. Such a government would likely prevent any sharp deterioration in France’s budget deficit but also lack any political capital to implement reforms.

Baseline Political Scenario Points to Slower Fiscal Consolidation and Pro-growth Reform

Whatever the outcome of current negotiations to form France’s next government, all scenarios appear less favourable for fiscal consolidation and additional reforms to enhance growth compared to the already weak outlook before the snap elections.

Any new government will find it difficult to build coalitions to implement an ambitious agenda to tackle France’s high budget deficit (5.5% of GDP in 2023), elevated government debt (110.6% of GDP) and rising interest burden.

These economic challenges are compounded by an ageing population, upward pressure on defence spending, and investment needs to manage the green transition.

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Thomas Gillet is a Director in Sovereign and Public Sector ratings at Scope Ratings GmbH, and primary analyst on France’s sovereign credit rating. Brian Marly, senior analyst at Scope and secondary sovereign analyst for France, contributed to drafting this comment.