France’s Le Pen Boosts Budget Asks Ahead of Monday Deadline

(Bloomberg) -- Far-right leader Marine Le Pen, who holds outsize leverage in France’s split parliament, gave Prime Minister Michel Barnier until Monday to adhere to her budget red lines before she decides whether to topple the government.

Le Pen’s National Rally is demanding that Barnier tweak his 2025 fiscal plans, which incorporate €60 billion ($63.5 billion) of adjustments. It wants him to abandon a proposal to reduce drug reimbursements, call a moratorium on new or higher taxes on most individuals, index pensions to inflation from Jan. 1, and enact tougher migration and crime policies.

The prime minister, who agreed on Thursday to abandon raising taxes on electricity, one of the National Rally’s key demands, will need to push through the social security portion of the new budget as soon as Monday.

Opposition lawmakers on the left have threatened to table a no-confidence motion once that happens, and if Le Pen’s party decides to support the move then the government could fall as soon as Wednesday.

“There are still difficulties,” she said of Barnier’s budget in remarks to Le Monde newspaper. “He has until Monday.”

The prime minister said during a trip to Limoges, in central France, on Friday that he’s talking to all parties in a spirit of “respect and dialogue.” This included a long discussion with Le Pen on Monday, as well as talks with Communist, Socialist and Green leaders later in the week.

“We continue to improve it, to adjust it, like I said yesterday, to take account of votes, the requests of different groups, and not just one group but all groups,” he said of the budget, adding that the aim is “to find an equilibrium that allows us to keep this ambition of narrowing the deficit in order to be able to reduce our debt one day.”

The prospect of a no-confidence vote has pushed investors to sell French assets, driving up the country’s borrowing costs compared with European peers. Yields on benchmark French 10-year bonds are now similar to those for Greece.

Barnier said France can no longer borrow money at “reasonable rates” and that interest payments on its debt pile will soar to €60 billion next year.

“I would prefer this money to be invested in industry, agriculture, security, education,” he told reporters.

What Bloomberg Economics Says...

“With the premium France pays to borrow drifting northward, how far-right politician Marine Le Pen handles the budget negotiations will be key.”

—Eleonora Mavroeidi. For full insight, click here.

National Rally President Jordan Bardella claimed “a victory” on Thursday following Barnier’s change of course on electricity taxes and followed up with more demands. He wrote on social media platform X that other red lines remain and “we can’t just stop there.” 

Bardella also called on Barnier to boost competitiveness for small- and medium-sized companies. 

“These sensible measures are realistic, can be applied rapidly and are expected by the vast majority of French people,” Bardella wrote. “The prime minister can’t remain deaf to them. He has a few days left.”

Le Pen told Le Monde she still intends to vote for the censure of the government as early as next week, in the event it applies article 49.3 of the Constitution to pass the social security financing bill without a vote.

“We want to find compromises,” government spokeswoman Maud Bregeon said on France 2 television on Friday. “Does the National Rally want to truly pass a budget, or set France up on a collision course for disaster?”

The current crisis began in June when President Emmanuel Macron called snap elections in a bid to bring clarity in a National Assembly where his party was already short of an outright majority. 

The gamble backfired, leaving the lower house split into three fiercely opposed blocs: A diminished center supporting the president, a leftist alliance, and a strengthened far-right led by Le Pen.

France’s 10-year yield premium over Germany, a closely watched gauge of risk, was around 80 basis points late on Friday. It’s been a roller-coaster week for the spread, which touched 90 basis points — the widest since 2012 — before winning some respite after Barnier conceded Le Pen’s demand on electricity taxes.

S&P Global Ratings is set to review its credit rating of France late Friday. It cut its assessment of the country to AA- in late May — three notches below the top grade — citing its budget deficit. Since then, the situation has only deteriorated, and last month, both Fitch and Moody’s responded to the turmoil by putting negative outlooks on their ratings and Scope downgraded.

France’s fiscal situation also is something that’s been worrying the country’s central bank chief, Francois Villeroy de Galhau.

“I think in the past two years the deficit has gone off track,” he said on Friday in Dijon. “If we want to reduce the deficit it’s very simple, like people living above their means we can either cut expenses or increase our revenue,” he said, adding that “in the past I’ve said that you mainly need to cut expenses.”

(Updates with Barnier comments starting in sixth paragraph.)

©2024 Bloomberg L.P.