French Prime Minister François Bayrou was ousted on Monday after losing a confidence vote in parliament, plunging the eurozone's second-largest economy into a fresh political crisis. Lawmakers voted 364 to 194 against Bayrou's government, exceeding the 280-vote threshold needed to topple it. The vote followed Bayrou's attempt to push through an unpopular €44 billion ($78 billion) austerity plan, which included scrapping two public holidays and freezing government spending, aimed at tackling France's escalating public debt.

Bayrou, who served just nine months, is expected to submit his resignation to President Emmanuel Macron on Tuesday. This marks the second government collapse in France in less than a year and the fourth prime minister under Macron in approximately 12 months, highlighting a period of profound political instability. The crisis has immediately rattled financial markets, with French 10-year bond yields surging to 3.60%, their highest since 2008, and the spread against German Bunds widening significantly, indicating growing investor concern over France's fiscal health. Banking and construction sectors have seen notable declines, while defensive sectors like utilities have gained traction.

The political turmoil complicates France's ability to address its substantial public debt, currently at 114% of GDP, and a budget deficit of 5.8% of GDP in 2024, far exceeding the EU's 3% target. Bayrou had warned lawmakers that they had the power to bring down the government, but not to "erase reality" of the nation's "unbearable" debt burden, which he argued was a broken social contract with younger generations.

Key Context

Background and history: The current instability traces back to President Macron's dramatic decision in May 2024 to call a snap election, which resulted in a fractured parliament with significant gains for the far-right National Rally and the far-left. This splintered legislature has made it exceedingly difficult for any centrist government to secure a stable majority for critical reforms.
Related developments: Bayrou's predecessor, Michel Barnier, also lost a no-confidence vote last December, underscoring a persistent pattern of governmental fragility under Macron. The proposed austerity measures, including freezing welfare spending, have ignited widespread public anger, reminiscent of past social movements.
Important connections: Instability in France, a core EU member, weakens its leadership role within the European Union, particularly amidst ongoing geopolitical tensions such as the wars in Ukraine and the Middle East, and global economic shifts. This internal strife could be perceived as a vulnerability by external actors.

Impact Analysis

The government's collapse has far-reaching implications. For President Macron, it deepens his political predicament, limiting his options for forming a stable government. Investors are directly affected by the surging bond yields and widening credit default swap spreads, signalling a repricing of French sovereign risk. Sectors heavily reliant on government stability or economic cycles, such as banking (BNP Paribas and Société Générale seeing over 10% declines) and construction, are most exposed. Conversely, defensive sectors like utilities and telecommunications are seeing increased investor interest. French citizens face the prospect of continued austerity debates, economic uncertainty, and potential social unrest, with unions already calling for nationwide protests. The crisis also creates an opportunity for competitor nations, with Italy's debt now viewed as relatively safer than France's amid widening BTP-OAT spreads.

Timeline

May 2024: President Macron calls a snap parliamentary election, resulting in a fractured parliament.
December 2024: Then-Prime Minister Michel Barnier loses a no-confidence vote.
September 8, 2025: Prime Minister François Bayrou loses a confidence vote, with 364 MPs voting against his government.
September 9, 2025: Bayrou is expected to submit his resignation to President Macron.
September 10, 2025: Nationwide general strike called by unions in response to proposed austerity measures and political instability.
September 12, 2025: Fitch is scheduled to review France's credit rating, with a potential downgrade looming.
September 18, 2025: Further national mobilization planned by trade unions.

Different Perspectives

Government's View (Bayrou): Argued that austerity was a necessary, albeit unpopular, measure to prevent a