French PM to Deliver Pivotal Policy Speech: What to Watch

(Bloomberg) -- France’s Prime Minister Francois Bayrou will deliver a crucial policy speech to lawmakers on Tuesday in his fight to stay in power and secure a plan to urgently repair the country’s creaking public finances.

Most Read from Bloomberg

Bayrou was appointed last month after his predecessor, Michel Barnier, was toppled when opposition parties from the left and the far-right joined forces in a no-confidence vote over the 2025 budget.

To avoid falling at the same hurdle, the new premier and his minority government must convince more lawmakers to abstain in repeats of such ballots.

ADVERTISEMENT

Bayrou helms a fragile coalition of centrist and conservative members of parliament without a parliamentary majority, and any compromise with opposition parties is likely to come with big-ticket strings attached.

His government has turned to moderates in the leftist New Popular Front alliance in the National Assembly to cut a deal that would ensure their abstention in confidence votes. Similar attempts by Barnier to reach an understanding with Marine Le Pen’s far right backfired.

On Tuesday morning, the head of the Socialists Olivier Faure, said his party may be nearing an agreement with Bayrou in which it would support the government in exchange for the suspension of a contentious reform of the pension system.

The far-left France Unbowed has already pledged to propose a no-confidence motion after the prime minister speaks at the National Assembly at 3 p.m. local time.

Here’s what to watch:

ADVERTISEMENT

Budget Balancing Act

France is currently without a full annual budget and reliant on emergency legislation to avoid a state shutdown. The previous 2025 fiscal plan was rejected with the collapse Barnier’s government when he tried to push €60 billion ($61.2 billion) in tax increases and spending cuts through parliament to bring the deficit down to 5% of economic output from around 6.1% in 2024.

Investors will be closely assessing Bayrou’s choices after months of dumping French assets on concerns over widening deficits and political instability.

The new finance minister, Eric Lombard, is targeting a slightly smaller adjustment based on €50 billion of savings to get to somewhere between 5% and 5.5%.

But the margin of maneuver is limited on several fronts. The government can’t make sweeping changes as it plans to reprise Barnier’s financial bills that are still at the senate. There are also constitutional restrictions on creating tax laws that would apply retroactively.

ADVERTISEMENT

Lombard has said the budget must also find a better balance to preserve economic growth, which is already showing signs of faltering amid the prolonged uncertainty. Yet an effort that makes little difference to public finances risks contravening European Union rules and sparking a negative market reaction that would further push up sovereign borrowing costs.

Both France’s central bank and the state auditor, the Cour des Comptes, have warned Lombard that to remain credible, the deficit must be as close to 5% as possible and clearly below 5.5%.

“We are going through a serious public finances crisis,” Pierre Moscovici, the head of the Cour des Comptes said last week. “It’s a very worrying situation and we must now get back control over the debt trajectory.”

Pension Conundrum

In order to not vote Bayrou out of office over the budget, Socialists from the moderate wing of the leftist New Popular Front are demanding a suspension of Macron’s flagship pension reform that gradually raises the minimum retirement age to 64 from 62.

ADVERTISEMENT

Bayrou has already promised negotiations with labor unions and political parties this year to revisit the parameters of the 2023 overhaul but said the law would remain in place during the talks.

The 2023 pension reform, which sparked mass protests, has left Macron and his party deeply unpopular with French voters and overshadowed his second five-year term. But undoing it would mark an emblematic reversal of a centerpiece of Macron’s pro-business legacy that he says is vital to boosting employment and halting the build-up of deficits in France’s vast social security system.

Suspending the implementation of the law would also make the 2025 budget calculations even trickier. According to labor minister Astrid Panosyan-Bouvet, canceling past pension reforms as opposition parties demand would cost around an additional €3 billion next year and almost €15 billion in 2030.

“It’s not as if money is growing on trees,” she said Monday on Radio J. “We have to be careful.”

Bayrou is also walking a budget tightrope with pension concessions because pleasing the center-left could come at the cost of support from a small group of center-right lawmakers. Laurent Wauquiez, the leader of the conservative party in the National Assembly, said in an interview with Le Parisien on Monday that he would not support a suspension that amounts to “jumping into the abyss without a parachute.”

Immigration

Bayrou must also consider demands from right-wing politicians — including from Le Pen and his own interior minister Bruno Retailleau — for stricter rules to curb immigration.

Shortly after taking office, the prime minister ruled out a new immigration bill for early 2025 as planned by the previous government, but said other tools could be used to make changes.

The left is likely to oppose any toughening of rules and has slammed the duo of Retailleau and right-leaning justice minister Gerald Darmanin in Bayrou’s government, with Faure initially calling the new cabinet a “provocation.”

If he loses the tacit support among Socialists, Bayrou may yet have to court Le Pen’s abstention in no-confidence votes, as Barnier tried. For now, the far right party has not committed either way.

“There is a lot more to be written before we can find a reason for reassurance in this budget,” National Rally vice-president, Sebastien Chenu said on Friday after talks at the finance ministry.

--With assistance from Ania Nussbaum.

(Updates with Socialist Olivier Faure’s comments in the sixth paragraph)

Most Read from Bloomberg Businessweek

©2025 Bloomberg L.P.