AXA IM: Budget bill elaboration is deadline for political solution in France

AXA IM: Budget bill elaboration is deadline for political solution in France

Politics France

In his latest Macrocast Gilles Moëc, AXA Group Chief Economist and Head of AXA IM Research, discusses the surprising outcome of the French elections and the difficulties around forming a majority cabinet.

While the results of the French elections’ second round might have come as a surprise, the likeliest scenario after the first round – that no block would gain an absolute majority of 289 seats– has materialized.

Left and right far away to prevent central coalition

'We know now that the most radical policy proposals will not be implemented, but it remains unclear how France will be governed,' he says. 'However, another key difference with the projections before the second round is that the far-left La France Insoumise (LFI) and the far right Rassemblement National (RN) are also, when taken together, very far away from the absolute majority needed to prevent a ‘central coalition’ from governing by voting a motion of no confidence. This removes a crucial risk. Yet, forging such coalition could prove difficult.'

Proper minority government would minimize disruption

A proper minority government, or a technical government, could be another solution to break the deadlock, according to Moëc. 'While Centre-Right les Republicains (LR) and significant parts of the left beyond LFI would not have to formally approve bills – in particular, the budget for 2025 – they could accept not to table a motion of no confidence and thus allow the legislative process to remain operational. This would however likely require a form of ‘minimalist’ policymaking, avoiding making too big decisions to avoid triggering the opposition of any of the camps. This would minimise disruption, but without providing much clarity on the French macroeconomic trajectory, at a time when fiscal action is called for.'

Prime Minister can be reappointed and budget bill is the real deadline for political solution

A key immediate issue is how France will maintain some government continuity while a political solution is found. 'Nothing forces the President to accept the Prime Minister’s resignation, and Gabriel Attal could be formally re-appointed,' Moëc says. A Prime Minister does not need to request a vote of confidence in the National Assembly which will reconvene on 18 July. 'We maintain our view that elaborating the budget bill – which needs to be transmitted to parliament in early October at the latest – is the real deadline for a political solution to emerge,' Moëc explains.