French premier seeks budget cuts that toppled prior cabinet

France’s new premier Francois Bayrou vowed to sharply narrow the nation’s deficit to close to 5% of GDP, a plan that threatens a repeat of the stand-off which toppled the last government.

Bayrou, who presented his new cabinet on Monday, will lay out his new policy agenda to parliament on Jan. 14 and has pledged to have a 2025 budget by mid-February.

A fragmented National Assembly means the new government made up mostly of centrists will need to placate opposition lawmakers from across the political spectrum. And there are early indications that key parties aren’t pleased with the composition of the new administration or its direction, risking another no-confidence motion.

Jordan Bardella, president of the far-right National Rally, called the new administration a “coalition of failure.” And on the left, Socialist Party leader Olivier Faure called the casting of the new government a “provocation.”

France has been in political turmoil since June, when President Emmanuel Macron dissolved the National Assembly and called early elections. The ballot returned a lower house split roughly among three feuding blocs: the leftist New Popular Front alliance, Marine Le Pen’s far-right National Rally and a smaller group of centrists that support the president. The first two joined together to force out Prime Minister Michel Barnier in early December.

France has long been out of compliance with European Union rules that require member states’ debt to be below 60% of GDP and a deficit under 3%. Next year’s budget will need to chip away at France’s current deficit, which has ballooned to 6.1% of economic output.

Bayrou has recruited a new cabinet stuffed with heavyweights and veteran figures to attempt the urgent budget tightening that lead to his predecessor’s eviction. The premier brought two former prime ministers back to government and tapped Eric Lombard, a seasoned investment professional with ties to left, to run the finance ministry.

Finding support for a 2025 budget will be difficult in the National Assembly, where Macron’s lawmakers are in the minority and opposition forces have shown little desire for compromise. Because France doesn’t yet have a budget law for 2025, the state will be reliant from January on emergency legislation that took effect on Saturday and permits only vital spending.

France’s political and budget difficulties have sparked a sell-off in the country’s debt in recent months, driving up the country’s borrowing costs compared to European peers. The spread between the yields on France and Germany’s 10-year debt closed at 81 basis points on Monday, the highest level since Dec. 4.

While the deficit target may be similar as the one sought by the previous cabinet, Bayrou said that the implications of his government’s budget, particularly regarding businesses, would be different.

“I’m for protecting companies,” Bayrou said. “I’m not saying that we can’t find some some short-term efforts to make, but I think it’s necessary for everyone to know where the national treasure is. The national treasure is companies. They create wealth. They create jobs.”

Lombard also signaled a slight change of approach to the budget from Barnier’s proposal of €60 billion ($62.4 billion) in taxes and spending cuts — an unusually large adjustment for France.

“We must reduce the deficit without killing growth,” Lombard said at a handover ceremony at the finance ministry late Monday. “It’s this balance we must look for and that’s the meaning of the 2025 budget.”

Bank of France Governor Francois Villeroy de Galhau said on Thursday that to remain credible France must still deliver a significant improvement that brings the deficit closer to 5% next year than 6%.

“We are at risk of gradually sinking little by little as we lose weight in Europe and the world and we lose our margin for maneuver,” he said on France 5 television.

Earlier this month, Moody’s Ratings cut France’s credit grade in an unscheduled change, warning that the country’s finances will be weakened over the coming years and that there is a “low probability” that the next government will be able to sustainably reduce the size of fiscal deficits beyond next year.

Bayrou is counting on Lombard’s credentials in helping get the 2025 budget over the line.

“He’s someone who’s had a very long career in business, insurance and banking, and is respected, I think, by everyone,” the premier said on Monday.

Lombard, 66, has a long experience of finance, most recently as chief executive of the Caisse des Depots Group, a two-century-old financial institution that reports to parliament. The institution is designed to serve public interests, combining asset management, financing of social housing and management of the state’s strategic holdings.

Lombard has spent most of his career before that in the financial sector, with stints at BNP Paribas and Generali France. In the early 1990s, he briefly served as an adviser to Socialist Finance Minister Michel Sapin, who himself returned to the same post for part of Francois Hollande’s 2012-2017 presidency.

But his biggest hurdle will be finding a compromise among opposition lawmakers. The Ecologist party leader Marine Tondelier said on Monday that the new government was “imbalanced” with too much influence given to the right.

“The same causes will have the same effects and Bayrou is following the same path as Barnier and it’s unlikely he doesn’t share the same destiny,” she said on BFM TV.

Faure, whose Socialist party could prove decisive in a no-confidence motion, said on Tuesday that none of the conditions are met for a “no-censure” pact with the new government, but that he will wait until the Jan. 14 policy speech to decide what action to take.