Political Instability and Budget Uncertainty Threaten France’s Economic Stability in 2026
France's political instability and budget delays risk worsening the 2026 public deficit, increasing taxes, and causing significant economic disruption, with losses potentially reaching €11 billion.
- • Failure to pass the 2026 budget could worsen the public deficit and increase taxes.
- • Proposed tax measures worth €5.5 billion risk cancellation without a budget.
- • Political pressure has led to a less ambitious budget aiming for under a 5% deficit of GDP.
- • Economic uncertainty causes hiring freezes and reduced consumer spending among businesses.
Key details
On October 11, Sébastien Lecornu officially announced his government amidst urgent pressures to pass France’s 2026 budget by year-end. Failure to approve this budget could drastically worsen the country’s public deficit and lead to increased taxes, impacting both public finances and economic confidence. Without a formal budget, the government would resort to a special tax law maintaining the previous year's rates, ignoring inflation and potentially resulting in higher tax burdens for citizens. The government’s proposed €7 billion defense funding would remain frozen, while critical revenue measures—including a high-income contribution and surtax on large companies expected to raise €5.5 billion—would be lost, deepening fiscal challenges.
Businesses express growing concern about the lack of economic visibility caused by political uncertainty, prompting hiring freezes and reduced consumer spending. Pierre Hanef from Someclim highlighted the climate of uncertainty affecting employment decisions. Economists project the total economic loss for 2026 could reach €11 billion, further damaging France's fiscal credibility and potentially increasing borrowing costs. This figure could worsen if political dissolution occurs, which has previously cost an estimated €15 billion.
Under pressure from left-wing parties, Lecornu has adjusted the budget proposals initially aiming for €44 billion in savings and a 4.6% GDP deficit to a less ambitious plan targeting under a 5% deficit. This revision represents a €6 to €9 billion reduction in savings, increasing the risk that France will fail to meet its European Union commitments. Economist Eric Dorff warns that this could lead to higher interest rates on public debt, which currently costs the state €67 billion annually and could escalate to €100 billion by 2029.
The economic impact extends beyond finance. In Plérin, Côtes-d’Armor, political unpredictability has unsettled workers and residents involved in public infrastructure projects. Essential services like water and electricity are under threat due to uncertainty over continuity during ongoing public works, as noted by local worker Dylan from ARC and resident Pascale.
With the 2026 budget due soon before the National Assembly and Senate, France faces a critical moment where political instability and financial policy uncertainty intersect to risk substantial economic disruptions, affecting public finances, business investment, employment, and citizen welfare.