France & Britain: Slip Sliding Away

By Andrew Stuttaford

Tuesday, September 02, 2025

 

Britain and France are still heading toward financial crisis.

 

The yield on Britain’s 30-year government bonds (Gilts) continues to rise, and at the time of writing has hit 5.65 percent, taking the latest spike (the fifth, depending on how you measure them) to a new high for the year. Meanwhile, a pound bought €1.21 at the beginning of the year. Now it buys around €1.16.

 

The signs are that a crunch is not far away, but Britain may have two advantages over France, which, of the two, may be the first to face some sort of reckoning.

 

To start with, Britain’s economic crisis is unlikely to be exacerbated by political chaos, at least in the immediate future; the longer term is a different matter.  However awful it may be (very) and however ominous some of the signs of deep discontent, Britain’s hugely unpopular government is not about to fall: It has a massive parliamentary majority, and its MPs know how they would fare at the ballot box should they revolt in enough numbers to trigger a snap election. Moreover, an overwhelming share of the U.K.’s government debt is denominated in pounds, meaning, at least in theory, that it can print itself clear of any default — for a while.

 

France is not going to default either, but a major political crack-up may be less than a week away. France’s prime minister, François Bayrou, heads a (sort of) center-right minority government, which has survived in power with the tacit support of either the Socialists or Marine Le Pen’s RN. Bayrou has now called for a parliamentary vote of confidence on September 8 on his proposed package of budget cuts and tax increases.  As of the weekend, both RN and the Socialists have said that they will vote against the package. If so, that will be that.

 

But what will that be?

 

No one really knows, but The Spectator’s John Keiger comes up with some thoughts:

 

President Macron could appoint France’s fifth prime minister in two years. But who would want the poisoned chalice of applying austerity measures with no possible majority in the present National Assembly? The President could call new elections as he did in 2024. But opinion polls suggest another minority government, albeit clearly dominated by the Rassemblement National. A third scenario would be for President Macron to resign. That would lead to a new RN French president, by no means committed to austerity measures.

 

I doubt if Macron has any interest in resigning early (his term does not end until May 2027). His first move will be to try to see if someone can be found to pick up that poisoned chalice. That would mean appointing a prime minister to head a caretaker government (which has only limited powers) until a replacement is found, which took nearly two months in the aftermath of the last parliamentary elections. There is no formal time limit for this process, and the longer it lasts, the greater the unease in the markets is likely to be.

 

The implications of the latter could be grim. France’s debts are almost all denominated in euros, a shared currency. Some technical wheezes apart, Paris does not have access to a euro printing press. If the interest rates it has to pay start rising still further, there is no resort to that dangerously “easy” out. That said, the EU does not want a rerun of the eurozone crisis, only this time centered on France, its second largest economy, rather than little Greece. Despite, presumably, German grumbling, in the event of panic, the European Central Bank would somehow be drafted in to restore calm.

 

But how politically realistic would the usual quid pro quo — austerity — really be?

 

After all, as Keiger points out:

 

With a 6 per cent budget deficit and national debt to GDP ratio at 113 per cent (predicted to rise to over 120 per cent), France is already operating at twice the EU’s Stability and Growth Pact requirements. In November last year, the country was placed in excessive deficit procedure (EDP). As a result, under Article 126 of the Treaty on the Functioning of the European Union, France is required to provide six-monthly plans to the EU Commission on the corrective action, policies and deadlines it will apply to return to a 3 per cent deficit by 2029, failing which astronomical fines could be imposed.

 

There is little chance France can comply with the plan.

 

The EU is “rules based.”

 

It is (almost) always a good idea for a country to have its own currency.

 

Only one of the foregoing two sentences is true.