Government on the verge of collapse - Showdown in Paris: The Eurozone is now shaking because of Macron's ego trip

Government on the verge of collapse - Showdown in Paris: The Eurozone is now shaking because of Macron's ego trip FOCUS-online editor Clemens Schömann-Finck • 2 hours • 3 minutes reading time Neither Italy nor Greece: France is the new problem child of the Eurozone. Debts are high, investors are nervous and the government is weak. Does the ECB have to intervene? The clock is ticking. Barely three months in office, Prime Minister Michel Barnier's government is threatened with collapse on Wednesday. The dispute over the 2025 budget has been raging for weeks. Finance Minister Antoine Armand wants to mobilize almost 60 billion euros through savings and additional revenue in order to reduce the high deficit. The problem: Since the early elections last June, the government in Paris no longer has a majority in the National Assembly. It was this fateful decision by President Emmanuel Macron after the disastrous European elections that got the country into trouble. Macron had decided to dissolve parliament almost single-handedly. But contrary to Macron's hopes, the new elections did not give him a break. Instead, parliament is split into three rival blocs, making it practically impossible to form a government with its own majority. Barnier is also dependent on the support of the left-wing Nouveau Front Populaire or the right-wing Rassemblement National (RN). The government is threatened with a vote of no confidence However, neither the left nor the right want to support Barnier's draft budget. On Monday, the prime minister therefore applied the controversial constitutional paragraph 49.3 to the social budget. This made it possible to pass it without a vote in parliament. But now the government must face a vote of no confidence. This could happen as early as Wednesday. Both left-wing and right-wing populists announced that they would not give the government their confidence in the matter The government would then only be in office in a caretaker capacity. Macron must then appoint a new prime minister who should have the prospect of gaining a majority in parliament. There is no date for this. Macron can theoretically reappoint Barnier and just reshuffle the cabinet. The appointment of a left-wing head of government, such as former Interior Minister Bernard Cazeneuve, is also being discussed. This would take into account the election result of the new election last July. However, even a left-wing prime minister would not have a majority in parliament. A government of experts is also conceivable. The political situation in the National Assembly would then be very unstable, however. France's public finances are getting out of control Investors are watching the development with concern. In view of the ailing public finances, France needs a strong, capable government to get the deficit and debt under control again: In 2023, the budget deficit was 5.5 percent of gross domestic product (GDP), and a deficit of six percent is looming for 2024. Without adjustments, it could be seven percent by 2025. The debt is 3.2 trillion euros. That corresponds to almost 110 percent of GDP. That is less than Italy with 134 percent, but significantly more than the Eurozone average of 87 percent. In 2025 alone, France will have to refinance around 350 billion euros in debt. Interest payments amount to 40 billion euros. That is as much as France spends on defense. In view of the budget dispute, investors are growing nervous. The levels of the debt crisis are still far from being reached. However, the risk premiums for French bonds compared to German government bonds are increasing. The trend has been upward since Macron's decision to hold new elections. Recently, the increase has accelerated. Last week, investors even demanded as much as for Greece and only slightly less than for Italy. Italy is significantly more indebted. The euro is also under pressure. It had already started the trading day in the red on Monday. After the events in the National Assembly became known, it significantly increased its losses. The dollar temporarily gained 0.7 percent against the euro. The ECB would be ready This is not good news for the Eurozone. The crisis in Germany and the threat of punitive tariffs in the USA have already caused enough problems. There is no need for new doubts about financial stability - speculation is already being made as to whether the ECB will soon have to bail out France. Because one thing is clear: high interest payments are exacerbating the budget problem. However, the situation would have to deteriorate significantly further before the ECB takes action. However, the ECB is prepared. Two years ago, the central bank created the "Transmission Protection Instrument" (TPI) to enable it to buy up government bonds on a large scale if the bond markets get out of control. The Eurozone is not yet safe from a new debt crisis.