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

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.