France’s Barnier Walks Parliament Tightrope: What to Watch

Michel Barnier will face France’s parliament for the first time as prime minister on Tuesday to deliver a make-or-break speech outlining how he plans to regain control of public finances while navigating bitter divisions between lawmakers.

President Emmanuel Macron picked him as premier nearly a month ago in an effort to restore political stability after snap summer elections produced a fractured National Assembly split between three irreconcilable blocs.

Barnier’s central challenge is to present a credible budget to reassure investors, who’ve been dumping French assets on deficit worries. He has also pledged to respond to anger over living standards and public services, and better control immigration.

The European Union’s former Brexit negotiator is operating with a minority government, made up of officials from his own conservative Republicans party, which holds fewer than 50 of the 577 seats in the lower house, and what’s left of Macron’s centrists.

Parliamentary math means Marine Le Pen’s far-right National Rally has the power to bring down the government if it decides to join no-confidence votes proposed by the left.

Here’s what to watch when Barnier takes the stage at 3 p.m. Paris time.

Barnier’s newly appointed government last week warned that the budget deficit risks expanding beyond 6% of economic output this year. That forecast has been raised repeatedly from the 4.4% the previous administration initially planned as tax receipts have disappointed and local authorities have ramped up spending.

The slippage has further rattled investors, who dumped French assets already when Macron dissolved parliament in early June. The risk premium on the county’s 10-year bonds over German equivalents has risen to around 80 basis points — around the same level as Spain’s — from below 50 in May.

How quickly Barnier seeks to narrow the deficit is a crucial element to watch. The previous government had planned to get the gap within the EU limit of 3% of economic output by 2027, but attempting that given today’s starting point would inflict harsh austerity on an economy already struggling with weak domestic demand and investment. Le Parisien newspaper reported that he will push that target back to 2029.

As well as preserving credibility with bondholders, Barnier’s government is also under pressure to agree a road map for public finances with the European Commission, the EU’s executive arm. New rules could afford a more flexible calendar, but to be granted leniency France must also commit to economic reforms as part of an overarching package.

Full details of the budget won’t be unveiled until next week, and France has already negotiated a delay until the end of the month to submit its longer-term plans to Brussels.

The pace of fiscal repair is important, but also how to go about it.

Over more than seven years in office, Macron has built economic policy around a pro-business mantra of not raising taxes, but Barnier has indicated he would push for more “fairness.”

Ministers have said their efforts will focus on cutting spending but have also floated temporary tax increases on wealthy individuals and large companies. They have said the least well-off, middle classes and small companies would be spared, without specifying who is included in those categories.

Le Parisien reported that Barnier will announce additional taxes to raise between €15 billion and €18 billion ($16.7-$20 billion). They include tripling an exceptional contribution on top earners to generate €3 billion and imposing an extra tax worth €8 billion on companies. In addition, he will set out a €3 billion tax rise on electricity and an additional €3 billion levied on energy companies and share buybacks, the daily said.

Barnier’s decisions could prove explosive as lawmakers from Macron’s party who are keen to preserve his legacy have said they would not support tax hikes. They credit the president’s approach with driving down unemployment and supporting economic growth, while France’s total tax take is still among the highest in the world relative to the size of its economy.

Le Monde newspaper reported that the Finance Ministry is considering an 8.5% temporary extra tax on companies with more than €1 billion in revenue. Barclays strategists said the increase in France’s corporate tax rate to 33.5% from 25% would lower the 2025 earnings per share growth of Paris’s blue-chip CAC 40 index by about 2.5 percentage points.

The prime minister can ill afford a blow-up on taxation as centrists from Macron’s group make up most of his government and provide a crucial support base in parliament.

While the minority government is susceptible to divisions on tax matters, a greater threat to its survival comes from Le Pen’s National Rally.

The left-wing opposition bloc in parliament has already pledged to table no-confidence votes to try to topple Barnier’s government, but they will only succeed if other lawmakers join. The National Rally’s support would be enough but Le Pen has been more ambiguous, saying her group would wait to judge Barnier on policy and the budget before deciding how to act.

With the far right as kingmaker, Barnier has shifted away from keeping Le Pen distant from decision making, saying he will respect and listen to all political groups in parliament.

Pensions will be an early test of whether Barnier can find compromises. The National Rally has said it will propose a bill on Oct. 31 to gut Macron’s reform raising the minimum retirement age to 64 from 62.

Read more: FRANCE INSIGHT: Le Pen Pension Reversal Could Cost 15% of GDP

Barnier has said his government would open a debate with unions on possible “improvements” to the legislation for the most vulnerable without calling the entire overhaul into question.

Barnier could also offer olive branches to Le Pen on immigration. He has already promised “concrete measures” to exert more control over arrivals in France and appointed Bruno Retailleau, a hard-liner from the Republicans, as interior minister.

While Macron has toughened France’s stance, both conservatives and the far right have accused him of not listening to what they describe as the French people’s demand for stricter border controls.

But shifting to the right on immigration could put further strains on his fragile support.

Retailleau has already sparked criticism after saying in an interview with Le Journal du Dimanche newspaper that France’s laws are not sacred when it comes to taking harsh measures to tackle immigration. Macron allies have slammed the comment, with lower house speaker Yael Braun-Pivet saying she’s “quite worried.”