ANALYSIS: French PM Bayrou lost, as expected. What next?

VOTE

• As expected, Bayrou did not attain a majority of votes ‘for’ confidence in him. However, the vote split was slightly worse than expected as only 194 MPs voted in favour of him, shy of the 210 seats the central alliance holds. A split that highlights the increasingly public divisions in the alliance, with the votes against/abstainers likely coming from The Republicans (LR). 


• President Macron acknowledged the loss and PM Bayrou is expected to hand in his resignation on Tuesday morning. 

REACTION

• OAT-Bund 10yr yield spread widening from around the 75bps point mark on Monday afternoon to a wide of 83.38bps when trade resumed the following morning, eclipsing the 82.19bps high that printed when Bayrou announced the vote. 


• As a reminder, desks did not expect significant widening of the OAT-Bund spread to be spurred by Bayrou losing, though the unfavourable vote split has potentially spurred the slight extension to recent highs, as outlined above.


• If the move continues, we look to the YTD peak at 88bps and then the 2024 peak of 90bps.


• Jefferies highlighted the risk of an extension towards 100bps in the event that fresh legislative elections are called. Note, the desk describes this as an attractive entry point as Presidential elections remain unlikely (Macron continues to make clear that he will not call for early Presidential elections).

NEAR TERM

• Macron will accept the resignation from Bayrou and will then appoint a new PM “in the next few days”, according to an Elysee advisor. The statement, according to Politico, indicated that Macron could appoint a replacement in one or two days. 


• The near-term risk point for Macron is the strike action on September 10th and 18th. Some have suggested that he may choose to wait until the passing of the first date before appointing a new PM, to allow Bayrou’s outgoing government to take the fall for the strike action.


• One idea being floated is the appointment of a negotiator instead of a PM, to attempt to determine if a working majority for an agreeable level of fiscal reform can be found before political considerations are added. We are yet to hear from Macron or the Elysee on this directly. 

NEXT STEPS

• President Macron appoints a new PM. However, any appointee would have the same issues Bayrou and Barnier before him, who faced a fractured political landscape, meaning this would be another sticking plaster rather than a lasting fix. One of the contenders for this could be current Finance Minister Lombard who, to the FT, outlined that Bayrou’s fall would necessitate concessions to the Left to secure broader support for reform. However, this feeler to the Socialist Party (PS) has already run into opposition from The Republicans (LR) as the right-leaning gov’t coalition member has made clear they will not work with PS - a point that has become more acute by the low number of votes provided to Bayrou.


• Fresh legislative elections could be called by President Macron. However, the polling situation has not moved in Macron’s favour since the 2024 election, as his Ensemble party has slipped by 21% of the vote share to c. 15% while RN and allies have been steady at around 32-33% (prev. 29%). Overall, the French system means an outright victory is very unlikely and as such the fractured political landscape would likely continue, with Macron running the risk of being President to a National Rally PM, likely Bardella.


• Macron has made clear that he has no intention of resigning ahead of his term ending around April 2027. Macron cannot seek a third consecutive term, though he could run again in 2032 or later, if he wished. If Macron stepped down, polling points to RN’s Bardella (Le Pen cannot run between 2025-2030 due to embezzlement, though she is planning to appeal this in the event of a Presidential election being called) securing victory in the first round with around 30% of the vote. Though, it is much less clear how he would fare in a second round vs Edouard Philippe, with polls for that round near-enough tied.

RATING AGENCIES

• Given the tricky fiscal situation France is in, and the necessity for significant reform in order to bring key measures in-line with EU rules, rating agency updates have and continue to be keenly watched regarding France.


• Reviews are due as follows: Fitch (AA-, negative) 12th September, DBRS (AA, negative) 19th September, Scope (AA-, Stable) 26th September, Moody’s (Aa3, Stable) 24th October, S&P (AA-, Negative) 28th November.


• If Fitch were to downgrade on the 12th, after the vote, then this would push French assets close to the point at which some funds would be forced to divest. Fitch last updated on March 14th, highlighting high levels of debt and a poor record of fiscal consolidation as points of weakness, adding the negative outlook is reflective of significant fiscal risks. While the confidence vote raises the odds of a downgrade, it is worth noting that Fitch in March expected new elections to occur in H2-2025, so it remains to be seen how much of this has already been ‘priced’ by the agency.


• However, on the flip side, the agency highlighted a “failure to implement a medium-term fiscal consolidation plan…” as a factor that could spur negative rating action.


• As a reminder, the EU’s Stability and Growth Pact requires member nations to have deficits equal/less than 3% of GDP and public debt to a maximum of 60% of GDP; France comes in at around 5.8% and over 100% respectively. Though, the Commission has been and is expected to continue to be flexible with the rules, focussing primarily on the medium-term trajectory and credibility of fiscal plans

09 Sep 2025 - 07:30- EquitiesData- Source: Newsquawk