France has seen a dramatic increase in political instability over the past year. At the same time, the nation’s deteriorating economy and growing fiscal risk are causing widespread unrest in the local stock and bond markets. So, what factors coalesced to cause this dire situation?
The Background to France’s Political Instability
In the June 2024 European Parliament elections, the far-right National Rally (RN) made a dramatic advance, winning first place with 31.5% of the vote, up from 23.3% in the previous 2019 EU election. In the wake of these results, already anticipating that the government might fall on the Budget vote in autumn, President Macron surprised everyone when he triggered snap general elections for the French National Assembly. However, for the first time since the end of World War II, no party managed to secure a majority, with the elections resulting in a hung parliament between the left-wing bloc New Popular Front (NFP), the centrist Renaissance (the party of the President), and the far-right National Rally (RN). Each group refused to work with the others, leaving the country locked in political deadlock.
Cabinet Changes in France
To truly understand how this instability plays out, it’s important to grasp France’s unique system. Unlike in the US, where the president governs directly, France operates under a semi-presidential system. The president serves as head of state, while the prime minister, chosen by the president but dependent on parliament’s support, functions as head of government. If parliament withdraws its support through a vote of no confidence, the prime minister must resign, even if the president remains in power. This often creates friction in times of divided politics.
In January 2024, Gabriel Attal, a member of the Renaissance party, became Prime Minister at 34, the youngest in the history of the French Fifth Republic. However, he was forced resigned in July 2024 following the split results in the National Assembly general election. In September 2024, President Macron named Michel Barnier, a member of France’s centrist Republican party, Prime Minister to lead a minority government with the centrist bloc. Unsurprisingly, he found himself unable to muster an absolute majority in Parliament, and three months later, in December, he too was forced to tender his resignation after a successful vote of no confidence called by his political opponents.
Soon after, François Bayrou of the centrist MoDem party became Prime Minister with the same minority support. Bayrou was annointed prime minister to help stabilize Macron’s government amid this tension, holding the responsibility of preparing and administering the national budget. The 2025 budget was passed, thanks to the left-wing Socialist Party’s abstention on a new no-confidence vote. Still, the announcement on July 15th of Bayrou’s plans for massive fiscal consolidation in the 2026 budget (approximately 44 billion euros in austerity measures) sparked intense opposition in the National Assembly and the country. Fiscal consolidation in this context means reducing the deficit through government spending cuts to social program and/or tax increases. On August 25th, seeking to force a vote on his budget, Bayrou took a serious political gamble, invoking the Constitution to formally request a vote of confidence (vote de confiance) for his government from the National Assembly, to be held on September 8th.
Results of the September 8th vote
The Bayrou Cabinet unsurprisingly failed to receive a majority in the vote of confidence and was forced to resign as required by the Constitution. Following that, Sébastien Lecornu, a close ally of President Macron, became Prime Minister on September 9th. Lecornu’s fate depends on whether he can pass a 2026 budget, and given the economic peril France faces, this will undoubtedly be a challenge. Alarmingly, the international rating agency Fitch recently downgraded French government bonds from “AA-” to a record-low “A+,” heightening concerns over political turmoil and fiscal instability. Although A+ is still an investment-grade rating, it signals increased risk to investors. This typically leads to higher borrowing costs for the French government, as lenders demand higher interest rates to compensate for perceived risk. Thus, these financial concerns will absolutely play a role in the success of Lecornu’s premiership.
Drawing parallels with Japan
Japan, where we live, faces fiscal problems that are as severe as or even more severe than those in France. France’s debt-to-GDP ratio is around 110%, far exceeding the EU benchmark of 60%. Meanwhile, Japan’s debt-to-GDP ratio is over 230%, one of the highest among advanced economies. Japan stuck to an ultra-low interest rate policy for a long time, and about 90% of Japanese government bonds are held domestically, with the Bank of Japan holding almost half of those. That makes the risk of external credit concerns or sudden fiscal collapse rather low. However, the interest rates on Japanese bonds have been on the rise these past few months. And there is a real possibility that they might climb higher yet in the future, and that progress in cutting government spending will not be fast enough. Rising interest rates make debt servicing more expensive and increase pressure on government budgets, even if most debt is domestically held.
On Sunday, September 7th, Prime Minister Ishiba announced his intention to resign, citing the completion of his government’s response to the US tariff measures. His resignation comes less than a year into office as he takes responsibility for his party’s failure to secure a majority in the House of Representatives elections in October last year and the House of Councillors elections last July. Next month, a leadership election for the Liberal Democratic Party is scheduled to be held, with the winner becoming the new Prime Minister. Still, regardless of who is elected, the divided, majority-less National Diet will undoubtedly quickly challenge the new Prime Minister’s political roadmap. In some ways, the rise of Japan’s Sanseito party mirrors the rise of France’s National Rally, both reflecting growing populist sentiment and frustration with traditional parties.
Conclusion
Both France and Japan face the combined challenge of political fragmentation and fiscal pressure. France’s repeated minority and government concerns make the path to a stable government uncertain. Japan’s rising interest rates and party divisions similarly threaten fiscal sustainability. In both countries, economic strain and political instability will be crucial to watch in the coming months, as governments struggle to maintain both credibility and control.
