France's government is set to fall – for trying to do the right thing

Someone needs to tell the French, the party’s over.

France’s second government in less than a year is on the verge of collapse. This week, 30-year-bond yields surged to levels not seen since the Greek debt crisis. French Finance Minister Eric Lombard raised the threat of a bailout from the International Monetary Fund only to try and walk it back. Meanwhile, Prime Minister Francois Bayrou brushed aside his failure to manoeuvre political rivals on the need for fiscal reform by claiming they were “on holiday” and therefore unavailable.

As markets look to price in the political and economic cost to France, Europe and the world, it’s important to examine the fallout.

The government is headed for a vote of confidence on September 8 that no one believes they can win. France’s debt-to-GDP and deficit are among the highest in Europe, mainly the result of unchecked government spending from the Covid-19 pandemic through Russia’s energy war on Europe. And while the current argument seems to revolve around what should be done to fix it, the Prime Minister’s plan – slashing €44 billion ($51.4 billion) from the nation’s budget and cutting two government holidays – has left his political opponents foaming at the mouth.

Meanwhile, it’s the end of August, a month made sacred in France. Holiday for the French is considered a basic human right; it’s on par with how most Americans see the second amendment of their Constitution – the right of the people to keep and bear arms. Holiday is a time when France is virtually shut down. But markets have not been reassured by photos showing President Emmanuel Macron frolicking in the sea with family while his country sinks into the political and economic abyss.

This, my friends, is France. A supposed pillar of the European project, stalwart of the transatlantic alliance and one of the only countries left that still believes Europe can fund the defence not just of itself but also that of Ukraine. All this but they can’t be bothered to miss their vacations to mend it.

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Worse still, it isn’t like no one could see this coming. France’s debt and deficit are among the highest in Europe. And as far back as the 17th century, Jean de La Fontaine, a man made famous for collecting and writing down French fables, presaged this turn of events.

La Cigale et la Fourmi, or in English translations The Grasshopper and the Ant, describes the travails of fun-loving grasshopper who sings and dances through the summer; the ants, meanwhile, are busy saving up and preparing for winter. In English versions, the ants eventually save the hapless grasshopper when the weather turns cold; and, chastened by his brush with death, he promises to lead a more circumspect life in future. Not so in the French version, which leaves the imprudent grasshopper to collapse and die in the snow.

Growth this year is expected at just 0.8 per cent. How do the French expect to project power in the face of US President Donald Trump’s tariffs and Russian President Vladimir Putin’s war on Ukraine when their own abject failure to rein in spending and stimulate growth could send interest rates on their debt surging to unprecedented levels, leaving them, as Mr Lombard said just last week, on the verge of falling “to the bottom of the pile in the European Union”.

France’s fiscal imprudence couldn’t come at a worse time for the country or for Europe. Between Brexit taking Britain out of the equation and Germany’s economic and social implosion following the invasion of Ukraine, Europe has been left without a leader.

The departure of Angela Merkel as the German chancellor in 2021 created a vacuum no one has managed to fill. And while her record is now seen, quite rightly, as highly suspect, the lack of a credible, unifying force shepherding European thought and action is hard not to miss.