PM's Resignation Jeopardizes 2026 Budget Adoption Amid Economic Concerns in France
The resignation of France's Prime Minister threatens the on-time adoption of the 2026 budget, causing economic and market unease while prompting potential legislative fixes.
- • Resignation complicates meeting the October 13 budget proposal deadline.
- • A special law freezing most state spending may be enacted to manage finances.
- • Economic impact is expected to be moderate, with potential deficit reduction of 15-20 billion euros.
- • Markets have dipped but remain cautious, and businesses express hiring hesitancy due to uncertainty.
Key details
The resignation of France's Prime Minister has complicated the timely adoption of the 2026 state and social security budgets, casting doubt on meeting the government's October 13 deadline. Public law expert Mathieu Carpentier warned that passing a budget before December 31 is unlikely, possibly requiring the enactment of a special law akin to one used in 2024 after a previous government collapse. This special law would freeze state expenditures to essential needs, maintain existing tax revenues, and prohibit new taxes, though it restricts adjustments like indexing income tax brackets to inflation, potentially increasing the tax burden on households.
Economists such as Maxime Darmet from Allianz Trade anticipate this approach would moderately impact the economy while potentially reducing the public deficit by 15 to 20 billion euros next year. The 2026 deficit could reach about 5% of GDP versus the 4.7% target previously set by former Prime Minister François Bayrou. Meanwhile, the CAC 40 index suffered a sharp decline, with banking stocks notably falling, signaling immediate market concerns following the resignation. French merchants, artisans, and business leaders have voiced apprehension, with some employers hesitant to hire amid political uncertainty.
The political instability and absence of a clear policy direction hinder budget negotiations and complicate national debt financing. Markets remain cautious but have not panicked, aware that further political upheaval, such as new legislative elections, could drive interest rates higher and slow economic growth.
This economic turbulence stems directly from the government's leadership vacuum, highlighting the delicate interplay between French political stability and fiscal policy implementation.