Macron has defied the will of the people. He leaves the French public no choice but to Block Everything | Rokhaya Diallo

France's political landscape is increasingly volatile following the historic collapse of Prime Minister François Bayrou's government via a confidence vote, leading to Sébastien Lecornu becoming the fifth PM since May 2022. This instability stems from President Macron's perceived disregard for public will, exacerbated by austerity measures like cutting public holidays that contrast with tax breaks for the wealthy and substantial corporate subsidies. Escalating widespread protests and social unrest underscore deep public discontent over economic inequality and governance, signaling ongoing challenges to France's political and economic stability.

Analysis

France is experiencing a period of profound political instability, underscored by the historic collapse of Prime Minister François Bayrou's government—the fifth to fall since May 2022. This crisis stems from the June 2024 snap election, which produced a hung parliament, and President Macron's subsequent appointments that have been perceived as defying the electoral mandate of the left-leaning New Popular Front. The immediate catalyst for the latest government failure was a controversial austerity plan, notably a proposal to eliminate two public holidays to save €4.2 billion. This measure was met with public fury as it was juxtaposed against the earlier abolition of a wealth tax, which cost a similar amount, and a Senate report revealing €211 billion in unconditional annual corporate subsidies. With the wealth of France's 500 richest individuals having doubled since 2017, government calls for public sacrifice have fueled massive social unrest, including the "Block Everything" movement across more than 500 locations. This continues a pattern of major protests seen with the *gilets jaunes* and pension reform demonstrations, reflecting deep-seated public anger over economic inequality and a governance style seen as heavy-handed. The appointment of another Macron ally as prime minister suggests that the political gridlock and high potential for further social disruption are set to continue, posing a significant risk to the country's economic and policy environment.

Key Decisions for Investors

• Investors should re-evaluate exposure to French assets, as the combination of a hung parliament and persistent, large-scale social unrest creates significant policy uncertainty and heightens market volatility.
• Monitor French sovereign bond yields (OATs) and credit default swaps closely, as the new government's ability to pass a credible budget without triggering further protests remains a critical test of its stability and fiscal authority.
• Be cautious on sectors sensitive to domestic policy and consumer sentiment, and consider the medium-term risk of future tax or regulatory measures targeting corporations, driven by intense public pressure over wealth inequality and corporate subsidies.
• Given France's role as the Eurozone's second-largest economy, consider hedging strategies against potential weakness in the euro, as sustained domestic political turmoil could create negative contagion effects across European markets.