ANALYSIS: French PM Bayrou to outline a policy statement from 14:00GMT, pension reform likely the key point

Analysis details (07:30)

• PM Bayrou will present a government statement in the National Assembly from 14:00GMT and then a debate will follow. The statement is billed as a “general policy statement” but is expected to be heavily focussed on the economy.


• In short, Bayrou needs to get a majority of lawmakers to agree on a fiscal plan of some description and one that has sufficient reform to bring the budget deficit closer to levels mandated by EU rules. In today’s speech, Bayrou is expected to be relatively vague as extensive negotiations still need to take place on fiscal reform and bringing the budget deficit down.


• Bayrou has been in extensive negotiations with parties on the left of the political spectrum (i.e. NFP) to avoid his statement being censured by the left. Thus far, La France Insoumise (LFI) has already committed to filing a “motion of censure”, i.e. a no-confidence motion on Bayrou, while Socialist Party (PS) member Brun has described the meetings as having gone well all week but the final draft presented to them by Bayrou (occurred late-Monday) was “nothing more or less than Barnier’s budget, but worse…”. Additionally, Brun poured cold water on the prospect of pension reform occurring, saying “There will be no suspension, only a big discussion…”.


• As it stands, PS has pledged to vote in favour of LFI’s censure motion unless the government suspends President Macron’s pensions reforms at the start of the renegotiation process.


• The government’s view on suspending pension reform is split, though there appears to be acceptance that some discussion on it is required. However, it remains to be seen if reform would be accepted given the extensive costs of suspending the measures, estimated at c. EUR 3bln in 2025, and the likely associated impact on the budget deficit.


• Overall, while some members supporting LFI’s censure motion is a possibility, particularly if there is no fresh movement on pensions, Le Monde notes that unless the National Rally (RN) also supports the motion the government should be safe at this point. Assuming Bayrou does not fall in any censure motion, which would likely be at the tail-end of this week, then we await details on exactly what compromises he has had to make in negotiations and what impact an eventual deal if achieved, will have on the budget deficit.


• Into the speech, EUR/USD is holding around the 1.0250 mark having been hit hard in recent sessions by rampant USD strength in a strong data and elevated yield environment. The OAT-Bund yield spread is around the 86bps mark, at wides and towards its highest levels since end-November when it hit 90bps.

14 Jan 2025 - 07:30- ForexResearch Sheet- Source: Newsquawk/Le Monde/Politico