Broken promises and political crises: how Emmanuel Macron fell from French favour

France is grappling with profound political instability, as its minority government faces imminent collapse and struggles to pass a budget, intensifying concerns over the nation's public debt crisis. President Macron's political authority has significantly eroded, with low public confidence and his centrist party's fragmentation, a situation analysts link to his policies inadvertently bolstering the far-right. This ongoing political gridlock and policy uncertainty in a major European economy present substantial risks to fiscal stability and could impact France's sovereign risk profile, demanding careful consideration from institutional investors.

Analysis

France is experiencing profound political instability, with three governments collapsing in under a year and the current minority cabinet narrowly surviving a no-confidence vote, indicating its extreme fragility. This gridlock threatens basic governance, particularly the ability to pass a national budget, which is described as a "brutal two-month battle." The situation highlights a deep-seated crisis encompassing financial public debt, social inequality, and political party weakness.

President Macron's political authority has significantly eroded, with recent polls showing only 14-16% public confidence and his centrist base fragmenting. Analysts attribute this to his policies inadvertently strengthening the far-right National Rally, which has seen increased support since his presidency. His second term is perceived as "chaotic" and ineffective, marked by an "exceptional level of hatred" from the public.

The ongoing political paralysis and policy uncertainty pose substantial risks to France's fiscal stability and sovereign risk profile. The struggle to pass a budget, coupled with an existing public debt crisis, suggests potential challenges in managing national finances and implementing necessary economic reforms. The recent suspension of the 2023 pensions law, a key reform, to prevent government collapse further underscores policy instability.

Key Decisions for Investors

• Closely monitor French sovereign bond yields and credit default swap spreads for signs of increased sovereign risk due to political instability and budget challenges.
• Re-evaluate exposure to French equities and corporate bonds, considering the heightened policy uncertainty and potential for stalled economic reforms.
• Assess the broader implications for Eurozone stability, as prolonged political gridlock in France could introduce systemic risk and volatility.