It is a theme of these times that we see Western governments struggling. We started the week with the effective appointment of a new Japanese Prime Minister and we also had the fall of a French Prime Minister accompanied by a desperate attempts by Prime Minister Macron to keep him. The reality according to the BBC is that things are speeding up.
Lecornu has arguably gone down in even more embarrassing circumstances than his two ill-fated predecessors.
At least Michel Barnier and François Bayrou both presided for a short while over their governments, and tabled a few ideas.
Lecornu, on the other hand, named his cabinet late Sunday afternoon and by Monday morning he had lost it. He didn’t even get to make his inaugural address to parliament, which was planned for Tuesday.
His government lasted for precisely 14 hours.
There is an irony for those that recall that Belgium actually did rather well when it had a sustained period without a government. But let us as ever move onto the economics which the BBC eventually gets to.
Le Maire – a former party colleague – is a particular bugbear of LR, partly because he betrayed them by joining Macron, and partly because they blame him for letting French debt spiral out of control when in control of the country’s finances.
The Debt Situation
I looked at this on September 15th after a downgrade by Fitch based on factors like this.
High and Rising Debt Ratio: France’s general government debt ratio will continue to rise, reflecting persistent primary fiscal deficits. Fitch projects debt to increase to 121% of GDP in 2027 from 113.2% in 2024, without a clear horizon for debt stabilisation in subsequent years.
As I pointed out then the forecast of a number above 120% is something that brings chickens home to roost after that number was used by the Euro area authorities as part of that they considered to be an exceptional situation in Greece. It did not go well at the time as they collapsed the Greek economy and Ireland and Portugal cruised past that level as well. Now some years later we see that using such a threshold has caught France in its net.
Indeed we see a fundamental problem in the Euro here as France has driven a coach and horses through this.
The Stability and growth pact, abbreviated as SGP, is a rule-based framework for the coordination of national fiscal policies under economic and monetary union (EMU) and the creation of the euro area with its single currency, the euro.
We have already seen that they are on their way to double the 60% debt to GDP limit and according to the Financial Times they are not far off doubling the 3% annual deficit limit either.
Lecornu’s departure as prime minister is likely to make it harder for France to put a budget in place by the end of the year, damaging the country’s ability to tackle its deficit, set to reach 5.4 per cent of GDP in 2025.
This was an issue back in the Euro area crisis of around 2012 where what were then called the PIGS pointed out that France and Germany had set the rules but had not applied the rules to themselves.Bringing that up to date many of them must be thinking this about France now and all the rhetoric they were subject to. In something of a plot twist they can use a Bulletin issued last week by the Bank of France as evidence of this.
In 2024, public spending in France stood at 57.2% of GDP, among the highest in the euro area, just behind Finland. In 2023, the last year for which a breakdown of spending by function is available, France ranked first, with spending 7.5 percentage points of GDP higher than the euro area average (+9.3 percentage points of GDP compared to the euro area excluding France). This gap has widened significantly since 2001, when it stood at 5.5 percentage points of GDP (6.9 percentage points of GDP compared to the euro area excluding France).
We are back to my Shirley Bassey theme.
Hey Big Spender!
But in the detail there is something that will rile more than a few of France’s Euro area partners.
Two thirds of this gap can be explained by significantly higher social protection spending (+5.0 percentage points of GDP), and the remaining third by greater spending in certain sectors (economic affairs, housing, education).
France has used much of the extra spending in the areas she was telling others to avoid and has thus pressed the hypocrite button.
Then there is what we might call the Italian problem which is that it has long been considered the national equivalent of being too big to fail. These days it is France who is the leader of the national debt pack.
At the end of the second quarter of 2025, public debt within the meaning of Maastricht stands at €3,416.3 billion, an increase of €70.9 billion, after +€40.2 billion in the previous quarter.
It used to be that numbers over 2 trillion looked large and now the magic number as De La Soul put it is 3. So a bailout would potentially be of a similar size to the ECB Covid operations. Of course then everybody benefited rather than just one country.
Lack of Economic Growth
As I have pointed out many times over the years in the end this is the game changer for debt metrics. The reality is that France has seen the same sort of economic growth as Italy and thus has ended up with similar problems. If we look at the immediate future it may well be about to get worse.
The HCOB France Composite PMI® Output Index* signalled a quicker reduction in private sector business activity during September. After posting just shy of the 50.0 no-change mark in August with a reading of 49.8, the index dropped to a five month low of 48.1.
In the past we have seen PMI numbers over react to political issues.But at best there is no sign of growth here and maybe worse. Just at the wrong moment. This is what ING forecasts looking ahead.
We project GDP growth of just 0.8% in 2026 following a 2025 growth rate of 0.6%, which is below the European average.
Should the PMI be an accurate reflection of trends then 2026 may be worse rather than better.But the fundamental point is that these are growth levels that exacerbate fiscal problems as they are simply not high enough.
The Euro
Whilst there were some headlines talking of a Euro “plunge” yesterday it is in reality pretty strong. It has applied my rule for parity calls as so often we see currencies then move the other way and it is at just under 1.17 versus the Euro. It is at 1.15 versus the UK Pound £ and yesterday set an all time high against the Japanese Yen.
So good in the fight against inflation. But less so for exports.
Comment
In reality the main player here is not something for the headlines. It is the lack of economic growth which combined with ll that spending brings Britney into play.
With a taste of your lips, I’m on a rideYou’re toxic, I’m slippin’ underWith a taste of a poison paradiseI’m addicted to youDon’t you know that you’re toxic?And I love what you doDon’t you know that you’re toxic?
Meanwhile Le Spread is at 0,87% and both France and Italy have a ten-year yield of 3.57% which again is another slow burner. Here is the Governor of the Bank of France.
First, annual interest payments: these were EUR 30 billion in 2020 and are expected to exceed EUR 100 billion in 2030.
Then there is the ECB itself and the French may be pleased their woman is in charge. But Christine Lagarde showed again yesterday that she is a fantasist.
As a foundation for stability and a powerful symbol of European unity, both at home and abroad, the euro is one of Europe’s greatest assets.
And.
The euro can be more than the currency of a continent and a symbol of unity – it can become a global anchor of trust.
