La Française: Implications of Barnier's resignation
This Thursday, Michel Barnier tendered his government's resignation to the President, following a decisive National Assembly vote (331 votes) censuring the 2025 Social Security Financing Bill. Odile Camblain, Head of Multi-Asset Management at Credit Mutuel Asset Management (a subsidiary of Groupe La Française) shares her insights on the implications of the resignation.
'In his subsequent address to the nation, President Macron emphatically reaffirmed his commitment to completing his term. This scenario of early presidential departure remains, as previously assessed, outside our base-case analysis framework.
While constitutional mechanisms of the Fifth Republic effectively preclude a U.S.-style government shutdown, France's fiscal and economic outlook has deteriorated materially in the absence of the proposed 2025 austerity measures from the now-departed Barnier administration.
The anticipated extension of the 2024 fiscal framework, through special budgetary legislation (to be submitted before December 19 and enacted before January 1), projects a fiscal deficit ranging from 5.5% to 5.8% of GDP for 2025, contingent on achieving the finance bill's growth target (1.1% in 2025). We maintain our view that this growth projection appears overly optimistic, given persistent investor skepticism and subdued domestic consumption, despite real wage appreciation. The sustained elevation in non-discretionary expenditure categories—particularly energy and food prices—continues to weigh significantly on French consumer sentiment.
The implementation of this constitutionally-mandated "special" budget framework should yield a marginally improved deficit position relative to 2024, facilitated by expenditure freezes and revenue maintenance at 2024 levels, excluding GDP growth and inflation adjustments. This technical provision serves as a crucial fiscal stabilizer and explains the measured market response.
Within the challenging Eurozone economic context, the ECB may accelerate its monetary easing trajectory. On Wednesday, December 4, prior to entering the ECB's quiet period, Christine Lagarde addressed the European Parliament, highlighting downside risks to Eurozone growth prospects, with particular emphasis on France. Consequently, the deposit facility rate could therefore drop at 1.75% ahead of current market expectations, potentially providing countercyclical support to French economic conditions.
Financial markets have demonstrated notable stability across both fixed income and equity segments. The France-Germany sovereign spread, currently trading marginally below 80 basis points, is expected to exhibit volatility within a 70-95 basis point range over the near term. Similarly, French equity and credit markets are likely to track their European counterparts, with periodic deviations driven by political developments.
While near-term market dynamics appear symmetric, medium-term risks remain elevated, with political uncertainty likely persisting at least until potential legislative elections in July.
We maintain our cautious stance on French assets.'