On the Brink : Exploring the Implications of the Upcoming Confidence Vote on 8th September

Hadrien Camatte, Economist for France, Belgium, and the Euro zone, and Théophile Legrand, Rates strategist, shed some light on the situation and potential implications for France, its economy and financial markets.

Much like President Macron’s call for a snap election in June 2024, few expected Bayrou to announce he would be seeking a confidence vote on September 8th, under Article 49.1 of the French Constitution.

Such votes are rare in recent history: no prime minister has requested one following a general policy speech since 2022. Unlike a no-confidence vote, which requires an absolute majority to bring down the government, a confidence vote demands only a simple majority of votes cast. Abstentions do not count, making the dismissing of the government theoretically easier.

However, heading into the vote, Bayrou does face challenges, as his minority government lacks the numbers, and opposition parties across the spectrum have all signaled their intent to vote against him.

If the Prime Minister does not get the confidence, Article 50 of the Constitution requires his resignation and the government would be disbanded. That would trigger either snap elections or the appointment of a new prime minister. However, with no guarantee that fresh elections would deliver a stable majority, France could enter a prolonged period of political stalemate should the government fall.

France’s 2026 budget is already under scrutiny, as the Budget plan presented by PM Bayrou mid-July, which includes an effort of €43.8 bn for 2026, triggered vocal reactions from opposition parties.

If the government collapses, delays in forming a new government could mean that Parliament misses its constitutional deadline —70 days from submission- to examine the draft finance law before year end.

That could leave France relying on stopgap measures, similar to what occurred in late 2024 when a special finance bill was passed to avoid a government shutdown. While such measures would prevent a shutdown, they do nothing to address long-term challenges such as a high public deficit and the growing public debt.

That being said, France is not the only European country to face difficulties on the political front. Spain has, for example, shown that a country can do very well without a budget. Since2016, the Spanish budget has been fully renewed four times (2019, 2020, 2024, 2025) and voted 6 months late in both 2017 and 2018.

Growth is projected to slow to around 0.6–0.7% in 2025, down from 1.1% in 2024, and part of this slowdown could be attributed to political uncertainties through the channels of corporate investment and consumer confidence.

Indeed, after snap elections were announced in June 2024, France’s business climate index fell and only partially recovered in subsequent months. A repeat could deepen the slowdown at a delicate moment for Europe’s economy.

France’s public finances remain a central concern. Debt is projected to rise above 120% of GDP by 2029, compared with about 113% at the end of 2024. The public deficit, at 5.8% of GDP in 2024, is expected to remain above 5% in 2025 - far from the EU’s 3% ceiling.

These figures have sparked speculation about whether France might one day require assistance from the International Monetary Fund. Experts dismiss any imminent threat: France still enjoys strong institutional credibility and a high credit rating.

IMF Chief Economist Pierre-Olivier Gourinchas recently remarked that France’s financial independence would only be at risk “if nothing is done” to alter its debt path, “neither tomorrow nor after-tomorrow” .

France will be reviewed by the four big agencies by the end of the year, starting with Fitch on September 12. France currently holds a rating of AA- with negative outlooks from most agencies, reflecting both fiscal deterioration and political risk.

An increase in fiscal risks amid political fragmentation could increase pressure on the French ratings. However, while on a downward trajectory, it is important to remember that France’s ratings remain very good quality.  

Financial markets have already priced in rising political risk. French 10-year OAT-Bund spread widened by 10-15 bps since mid-August, reaching around 70-80 bps. This is below the peak of 85-90 bps seen in December 2024 which coincided with the fall of the Barnier government. The market is nervous but not panicked. Interestingly, investors appear to be anticipating Bayrou’s downfall but are not yet pricing in a full-blown crisis.

French banks have significantly increased their holdings in OATs over the past two years, raising concerns about market exposure. As Fast Money investors look to boost short positioning on OAT Futures, Real Money investors may also consider similar strategies, reflecting a cautious market sentiment. Historical trends indicate that foreign investors, especially Japanese accounts, are more risk-averse, underscoring the necessity for France to mitigate political risks to prevent potential sell-offs. This concern is amplified by projections of a €31 billion rise in net supply by the end of the year, mirroring challenges previously encountered by Italy in similar situations.

Yet comparisons between France's current situation and past crises in Italy and the UK reveal significant differences. While Italy has navigated periods without a budget, France's economy remains more diversified and resilient, potentially mitigating risks associated with political instability. And unlike the UK's crisis triggered by unfunded expenses, France's economic outlook remains strong despite fiscal challenges.

For Bayrou, the confidence vote is both a calculated risk and a strategic move. By initiating the vote, just days before a planned nationwide strike on September 10, he appears to be urging Parliament to weigh fiscal responsibility against political maneuvering.

The outcome of this decision will be closely monitored as Fance enters a period of heightened uncertainty that could last for weeks, if not months.