France: What scenarios for the 2026 Budget?

On July 15, Prime Minister François Bayrou presented the key takeaways of the 2026 Budget and his medium-term plan to consolidate French public finances. This Budget plan, which includes an effort of €43.8 bn for 2026, triggered vocal reactions from opposition parties and highlighted the weakness of a government that relies solely on a relative majority. We believe that the government will have no choice but to invoke Article 49.3 to pass the Budget (i.e., without a parliamentary vote). This will trigger a no-confidence vote, so that we believe the "peak risk" of the government to be dismisse d will occur when the draft Budget law is discussed by the National Assembly, from mid-October. The position of the Socialist Party – which allowed the 2025 Budget to pass last February – but also that of the National Rally will be crucial in gauging the government's chances of survival. Will France have a Budget by year-end? We think that there is a high probability that the Bayrou government will collapse before the year's end. Should that happen, we anticipate that the most likely outcome would be new snap elections, potentially leading to another hung parliament and the adoption of the 2026 Budget at the beginning of next year, following the implementation of a special finance bill. Is the lack of a Budget necessarily bad news for French public finances? Under a special finance bill, no new expenditures shall be implemented, and discretionary expenditures may be suspended, implying some consolidation efforts in the short term. However, the absence of a complete Budget would threat the medium-run public finances path and put the French rating s at risk.