Mujtaba Rahman is the head of Eurasia Group’s Europe practice. He tweets at @Mij_Europe. When French President Emmanuel Macron reappointed his ally and confidante Sébastien Lecornu as prime minister, he was widely accused of being obstinate and out of touch. Coming just four days after Lecornu’s resignation, the decision turned out to be a prelude to the most humiliating U-turn of Macron’s eight years in the Elysée Palace. On Tuesday, Oct. 14, Lecornu announced he’d suspend the only significant domestic reform of the president’s second term — the gradual increase in France’s official retirement age from 62 to 64. A costly concession that will increase French social spending by €2 billion over two years, it was demanded by the Socialist swing group in the country’s National Assembly as their price for allowing Lecornu’s survival, so that he can negotiate a deficit-cutting budget. The prime minister’s concessions didn’t stop there. He also promised the Socialists he’d moderate the pain of deficit cuts next year, and that he’d allow the much-splintered assembly and senate to negotiate the final details of the 2026 budget without using the government’s power to impose its choices under Article 49.3 of the constitution. But by offering to set aside his guillotine powers, Lecornu has bought time at the expense of infinite complication. Despite his huge giveaways, Lecornu barely survived two no-confidence votes, which were supported by the far right and part of the left, by only 18 votes. Sixty-nine Socialists, with 7 exceptions, stood aside, warning they’d shift their pivotal weight to bring down the government unless its draft 2026 budget was reshaped to their liking — take that as code for fewer spending cuts and big tax increases on big business and the wealthy. This isn’t where the bad news ends for Lecornu: During the first two days of negotiations in the National Assembly’s finance committee, an unholy alliance of left and far right added another €9 billion to next year’s deficit. The amendments — numbering more than 1,500 in total — also included a radical reversal of the government’s plan to freeze income tax bands next year. So, for the moment, France seems likely to avoid the threat of a snap parliamentary election, which could bring the far-right National Rally party to power. But the budget crisis remains far from resolved. Without the government’s magic wand to shorten debate, each line of the budget — actually two budgets, both government and social security — will now be the object of intense haggling between the governing center, a divided left and a bloody-minded far right. The 2026 budget draft sent to the assembly follows the broad lines drawn up by Lecornu’s predecessor, François Bayrou — though the new prime minister describes it is a “point of departure.” And if they can agree on anything, the two houses of parliament will have the final word. National Rally is anti-tax and pro high social spending — save on immigrants. Whereas center-right leader Bruno Retailleau, who has been increasingly hostile after leaving the government earlier this month, has called on his deputies to reject the budget outright unless all tax rises are kept to a minimum. Meanwhile, the Socialists will have a hard time swallowing the proposed spending cuts in the budget draft. Bruno Retailleau has called on his deputies to reject the budget outright unless all tax rises are kept to a minimum. | Christophe Petit Tesson/EPA No doubt the left will also try to revive the so-called Zucman tax — a 2 percent annual levy on all fortunes above €100 million. And while the government may tactically agree to some increases in taxes on the wealthy next year, it will face fierce opposition on the matter from the center right and even its own centrist camp. There is, however, room for compromise. Lecornu has conceded in advance that the deficit target for 2026 can be softened to “below 5 percent of GDP” instead of the 4.7 percent in the draft budget. This means any budget that emerges is likely to disappoint France’s creditors, the rating agencies and the European Commission. And without Article 49.3, the result will likely be a “Frankenstein budget” with little fiscal logic — or no budget at all. Still, Lecornu has another constitutional weapon, or threat, on his side. If no opinion is given by parliament within 70 days, or in 50 days for the social security budget, the government has the right under the constitution’s Article 47 to impose a version of its original budget by decree. This outcome has never been used before — and Lecornu would almost certainly be censured and toppled if it were to happen.Yet, some veteran parliamentary insiders are regarding it as increasingly likely, which suggests France’s political and fiscal crisis is far from over.

PARIS — Rating agency Moody’s on Friday maintained its credit rating on France but revised its outlook to “negative” from “stable” as the beleaguered government of Prime Minister Sébastien Lecornu struggles to push through his budget. Moody’s decision not to lower France’s rating will be a relief for the government after downgrades by the other two big ratings agencies — S&P and Fitch — in recent weeks. Moody’s kept its long-term sovereign rating on France at Aa3, but cited political instability and the resulting difficulties in taming the government’s budget deficit in lowering its outlook to negative. The negative outlook means the rating agency’s next update likely could be a downgrade. Friday’s decision “reflects the increased risk that the fragmentation of the country’s political landscape will continue to impair the functioning of France’s legislative institutions,” Moody’s said in a statement. “This political instability risks hampering the government’s ability to address key policy challenges such as an elevated fiscal deficit, rising debt burden and durable increase in borrowing costs,” the agency said. French Finance Minister Roland Lescure said in a statement that Moody’s decision showed “the absolute need to build a common path toward a budget compromise.” He added that the administration “remains determined” to meet the deficit target of a 5.4 percent of GDP this year and to get the budget shortfall below 3 percent of GDP by 2029. In an interview with POLITICO shortly before the decision was published, Moody’s Chief Credit Officer Atsi Sheth said that putting some order in France’s public finances was increasingly “challenging” because of the inability of French parties to find compromises. The French parliament’s lower house, the National Assembly, earlier this week started discussing the €30 billion budget squeeze proposed by the government for next year. In yet another concession to win the Socialists’ support, Lecornu promised not to use a constitutional backdoor that would have allowed him to bypass a vote in parliament to pass the budget and ignore most parliamentary amendments. But that leaves his budget draft vulnerable to dilution during the parliamentary process and to the risk that deficit cuts will be smaller than expected.

PARIS ― Political instability is likely to hurt French efforts to get the country’s public finances in order, a top executive at Moody’s said ahead of a hotly anticipated credit rating decision on Friday.   “We do believe that fiscal consolidation is a goal, but we anticipate that meeting that goal is going to be very challenging,” Moody’s Chief Credit Officer Atsi Sheth told POLITICO in an interview in Paris. “The last couple of months have just been evidence of that challenge.” Moody’s is the last of the three big  agencies that still considers France a AA-rated credit, following downgrades to the single-A category from Standard & Poor’s and Fitch in recent weeks. Sheth acknowledged Prime Minister Sébastien Lecornu’s public commitment to narrowing a budget deficit that is set to hit 5.4 percent of gross domestic product this year, but said the “process is fraught with challenges, challenges that are rising given the political environment.” France has been in the throes of heightened political instability for the last two years, cycling through no fewer than five prime ministers. Lecornu’s predecessor, François Bayrou, was toppled in September over his plans to squeeze the 2026 budget by €43.8 billion, and Lecornu himself was forced to resign earlier this month just 14 hours after naming his government. President Emmanuel Macron reappointed him to the job days later.   Lecornu has put forward a budget for next year that includes €30 billion worth of savings and could narrow the deficit to 4.7 percent of GDP. But getting it approved will be a fraught process. To help ensure the survival of his minority government, the 39-year-old has promised not to use a constitutional backdoor that would have allowed him to bypass a vote in parliament to pass the budget. That leaves his draft vulnerable to dilution during the parliamentary process. “It is really up to us — the government and parliament— to convince observers, rating agencies and financial markets,” Finance Minister Roland Lescure said last week after S&P downgrade.  | Alain Jocard/AFP via Getty Images Sheth said that Lecornu’s pledge to let the parliamentary debate happen is the type of move that is taken into account when deciding a credit rating. But she stressed that the most important thing was for France to signal it’s serious about cutting runaway public spending. More than anything, that means reining in the cost of France’s generous pension system, by measures such as the unpopular 2023 law that raised the retirement age for most workers to 64. Lecornu has pledged to pause that measure, a concession to the left to ensure his government’s survival. The freeze will cost state finances €400 million in 2026 and €1.8 billion in 2027, which will have to be found elsewhere, Lecornu said.  When Moody’s downgraded France last year, it said that backtracking on that reform could negatively impact France’s credit.   “The suspension does mean that the fiscal risk that would have been addressed by it remains,” Sheth said.  Moody’s downgraded France to Aa3 from Aa2 in December, citing the political uncertainty but left its outlook stable. Another downgrade would see France drop out of the prestigious group of countries rated double-A, such as the United Kingdom. As such, a downgrade could see French bonds vanish from the portfolios of investors who are limited to holding assets with a minimum of one AA-rating. The risk of a downgrade is, however, somewhat mitigated by the fact that Moody’s latest judgment on the credit outlook was “stable” rather than “negative.” “It is really up to us — the government and parliament— to convince observers, rating agencies and financial markets,” Finance Minister Roland Lescure said last week after S&P downgrade.  

PARIS — Ratings agency Fitch downgraded France’s credit rating just days after the country named yet another prime minister. The agency cited “the increased fragmentation and polarization of domestic politics” in lowering France’s rating to A+ from AA-. The outlook is stable, Fitch said. “Since the snap legislative elections in mid-2024, France has had three different governments,” the ratings agency wrote in its analysis published late Friday. “This instability weakens the political system’s capacity to deliver substantial fiscal consolidation and makes it unlikely that the headline fiscal deficit will be brought down to 3 percent of GDP by 2029, as targeted by the outgoing government,” Fitch said. The downgrade comes as France is going through a political crisis and is struggling to cut its massive public debt. On Tuesday, French President Emmanuel Macron appointed Sébastien Lecornu as prime minister after his predecessor, François Bayrou, was toppled a day earlier in a confidence vote over the €43.8 billion budget squeeze he proposed for next year. “We expect the run-up to the presidential election in 2027 will further limit the scope for fiscal consolidation in the near term and see a high likelihood that the political deadlock continues beyond the election,” the agency said. If Fitch’s downgrade is followed by the other major rating agencies, it could spell trouble for France. Moody’s and Standard & Poor’s will assess the country’s credit rating in October and November, respectively. The outgoing government has pledged to bring the country’s deficit down to 4.6 percent of gross domestic product next year and to bring it under 3 percent, as required by EU rules, by 2029. Financial institutions and auditors have repeatedly urged France to rein in its deficit, which skyrocketed after the coronavirus pandemic and the energy crisis. The country’s auditors and the outgoing prime minister have warned that, without major cuts, debt reimbursement will become France’s number one budget item next year, surpassing spending in education. But attempts to reduce government spending are facing a backlash from far-right and left-wing opposition. Bayrou’s plan included eliminating two public holidays, as well as freezing welfare payments including pensions and salaries of some government employees. New Prime Minister Lecornu has distanced himself from his predecessor as he tries to win the support of the center-left Socialists.

François Bayrou, France’s latest embattled prime minister, is blaming the country’s 19 million over-60s for pushing state finances to the brink. Looking likely to be the latest French leader to fall on his sword, Bayrou is going down fighting — albeit fighting old people. The working-age population faces “slavery,” he said, because it’s having to repay “loans that were light-heartedly taken out by previous generations.” Bayrou wants to force through €43.8 billion worth of budget cuts to bring French spending under control. But he faces a largely hostile French parliament, with the left and the right signaling they will vote him down at a confidence vote he’s called on Sept. 8. Where France, Europe’s second-largest economy, is going, the rest of the continent will probably follow. Not only do the country’s unsustainable finances threaten to drag the rest of the EU into a debt crisis of the kind that rocked the eurozone a decade and a half ago, but France’s troubles foreshadow a phenomenon that’s going to hit pretty much every European country sooner rather than later: Populations are getting older, meaning there are fewer workers to pay for an ever greater number of pensioners. How governments tackle that could be the challenge of our age.  NOT OK, BOOMER Bayrou, born in 1951, is blaming his fellow boomers. The over-60s make up over one-quarter of France’s population ― a share that is expected to rise to a third by 2040. They are either drawing a pension or about to, putting increasing pressure on France’s exploding public debt, which now exceeds €3.3 trillion.  The centrist prime minister, allied to President Emmanuel Macron, staked his reputation on insisting there’s no alternative to a path of fiscal rectitude. France’s €400 billion annual pensions bill is equal to 14 percent of national gross domestic product. The costs will increase by €50 billion by 2035, while a decade later the bill will be a cool half a trillion euros. Bayrou, a former justice and education minister who has tried three times to become president, has long been a proponent of putting the national books in order. But going after the oldies in such a blatant way is a new twist.  That’s probably because he knows he’s got little left to lose. As France’s third prime minister in a year, Bayrou has served a little under nine months and doesn’t look likely to make it past that. France’s Socialist party, which Bayrou would once have counted on as an ally, has turned its back on him over pensions reform — an issue that exploded after the government raised the retirement age from 62 to 64. Last week, Bayrou warned that young people will be the biggest victims of the ballooning debt.  The over-60s make up over one-quarter of France’s population ― a share that is expected to rise to a third by 2040. | Patrick Landmann/Getty Images “All this to help … boomers, as they say, who from this point of view consider that everything is just fine,” he said in a televised interview. He has since clarified that he never advocated “targeting boomers” ― technically those born between 1946 and 1964 when the postwar population exploded ― but the message is clear: The older generation needs to do some belt tightening. “There is a risk of cannibalization, whereby we finance the present and the past at the expense of the future, and we are doing this more and more,” said Maxime Sbaihi, a fellow and former director of Institute Montaigne, an economic think tank. “The French are not aware of the demographic situation in France, they think that France is a young country, that we can stop working at 60, there is a kind of collective imagination that is difficult to shake,” he added. This ignorance, he said, is leading France toward a brutal, painful adjustment of its social system. TO THE GUILLOTINE! France’s pensions bill accounts for one-quarter of all government spending; Italy is the only European country paying out a larger share proportionate to its economy. Pensions account for over half of France’s €839 billion increase in public debt between 2018 and 2023, former Treasury official Jean-Pascal Beaufret warned. “For us millennials, Bayrou’s speech about boomers … will be our Robespierre at the Convention of the 8th of Thermidor,” Ronan Planchon, a journalist for the conservative newspaper Le Figaro, wrote on X, a reference to how the French revolutionary leader was sent to the guillotine after denouncing his own compatriots. Bayrou has warned the biggest victims of the ballooning debt will be young people.  | Alain Jocard/AFP via Getty Images Pensions have long been a political taboo, with France nearly always seeing street protests whenever an overhaul is mooted. Fresh demonstrations are planned for Sept. 10.  But given the country’s aging population, politicians are reluctant to challenge a group that represents a big slice of their vote, and that holds the lion’s share of the country’s wealth and savings. Compared to other items on the budget, pensions are particularly hard to adjust, said Hippolyte d’Albis, an economist and professor at the ESSEC Business School. “It’s an expenditure that is binding on society because the parameters that determine it — most notably the annual indexation of basic pensions — are set by law and can only be changed by passing a new law,” he said.  In 2024 the national deficit stood at 6.1 percent of GDP — double the 3 percent allowed under the EU’s fiscal rules. Paris forecasts that the deficit will not fall below 3 percent until 2029.  Economy Minister Eric Lombard suggested things could get bad enough to require the International Monetary Fund (IMF) to bail the country out — treatment usually reserved for financial basket cases like Argentina. He backtracked a few hours later after a large wobble in the stock market.  François Bayrou wants to force through €43.8 billion worth of budget cuts to bring French spending under control. | Christophe Petit Tesson/EPA The markets are already well aware of France’s troubling fiscal trajectory; the country has already had its credit rating cut by the major credit ratings agencies. It’s now a stone’s throw away from seeing its borrowing costs surpass those of Italy, long a byword for reckless spending and unsustainable debt.   France’s pensions system is unbalanced, but in demographic terms the country is actually a lot better off than many of its peers, with the second-highest fertility rate in the EU, at 1.7 births per woman. Italy and Spain, for example, face an even more stark fiscal cliff as the population ages, with only 1.1 to 1.2 births per woman. “France is the developed country where the standard of living in retirement is the highest compared to the average standard of living of working people,” said Thierry Pech, director general of progressive think tank Terra Nova. He said that raising the working age, which France has already done, is in some ways the “most brutal method.” “It wouldn’t be unfair to involve the wealthiest retirees,” he said. “But it would require a bit of political courage and a lot of education.”