France (and the eurozone) face make-or-break moment on budget black hole

PARIS — French Prime Minister Michel Barnier is preparing for an imminent survival test that risks sending shockwaves across the eurozone if he fails. 
France has a yawning budget deficit — more than twice the level permitted by EU rules — and Barnier is admitting he will need to resort to a constitutional backdoor to help fix it with a mixture of spending cuts and tax hikes that may prove politically toxic.
Brussels and financial markets are watching closely, as Barnier’s debt battle will indicate just how seriously France takes rules designed to ensure the stability of the eurozone. The single currency area has been roiled by previous panics in significantly smaller economies, such as Greece and Spain, so a full-blown French crisis could prove explosive.
Barnier has allowed debate over the budget to play out for more than a month. But it’s been clear since the outset that to pass a spending bill, he will need to turn to a constitutional tool that allows his government to adopt legislation and bypass a vote, but also allows the opposition to table motions of no confidence.
It’s a reality he acknowledged last week in an interview with regional daily Ouest France.
“When I see what happened in the [National] Assembly, it seems difficult to do otherwise at the end of the discussion,” Barnier said, referring to the tool, Article 49.3 of the French constitution. “But you’ll note that we’ve chosen to let the debate take place there.”
Barnier would likely need to pass the budget using 49.3 — and open his government up to a no-confidence motion — by mid-December.
If the government fails to pass the budget and collapses, “it won’t only be a political crisis, but a financial crisis,” warned an adviser to Barnier, who was granted anonymity in line with the government’s communication policy. But the former Brexit negotiator is staying zen, at least according to his allies.
“He has been very serene since day one; he knows where he’s going,” the Barnier adviser said. 
The prime minister last month proposed draconian spending cuts and tax hikes for next year to reduce the deficit, which reached 6.1 percent of the country’s gross domestic product this year, well above a target of about 5 percent. In 2023, following France’s massive public spending during the pandemic, the European Commission placed the country under an excessive deficit procedure — though outgoing European Economy Commissioner Paolo Gentiloni on Friday urged gradual cuts in order to limit the impact on growth.
Barnier’s budget plans have triggered criticism from across political spectrum. The left is accusing him of subjecting France to austerity, while President Emmanuel Macron’s centrists and Marine Le Pen’s far-right lawmakers are attacking him for raising taxes.
The left has already vowed to table a motion of no confidence. Le Pen’s National Rally has not yet announced what it will do, but it will play a key role in whatever happens next. The far right and the left together have enough troops that, together, they could torpedo the Barnier government before Christmas.
The National Rally is keeping its cards close to its chest and sending mixed messages. Party heavyweights Sébastien Chenu and Jean-Philippe Tanguy in recent days hinted that the party could vote down Barnier’s government. The final decision will be taken by Le Pen, however, whose political future is itself threatened by an embezzlement trial. If found guilty, she could be sentenced to prison and barred from running for public office for five years.
Instead of pulling the plug on parliamentary discussions at an early stage, as some of his predecessors did, Barnier has played a different game, betting that time is on his side as the budget needs to be voted through by the end of the year.
The French prime minister has repeatedly pledged to let legislators work, knowing he’ll have to resort to 49.3 if lawmakers can’t reach a deal.
For more than a month, left-wing MPs in the more powerful lower house of the French legislature, the National Assembly, have repeatedly amended the government’s proposed budget, making it unrecognizable, notably by adding a bevy of new taxes. In a vote last week, Barnier’s allies and the National Rally voted down the amended text. As a consequence, budget discussions are now back to square one, with the government’s initial text now being discussed in the French senate. 
The president of the National Assembly’s finance committee, Éric Coquerel from the far-left France Unbowed party, believes the decision to use 49.3 could backfire against Barnier.
“I don’t think that the European Commission and financial markets will be reassured: 49.3 won’t stop a no-confidence motion, and the no-confidence motion will make the government fall,” he told POLITICO during a pause in the marathon budget discussions this month.
Coquerel rejected the idea that markets would be scared by the left-wing proposals for more taxes, and pointed the finger at Macron for calling a snap election over the summer that led to a hung parliament. 
“What worries the markets is the period of political instability triggered by Emmanuel Macron,” he said.
Despite criticism from the left and the far right, Barnier and his ministers keep banging the drum on the need to get France’s finances in order.
On a trip to Brussels last week, Barnier reassured Commission President Ursula von der Leyen and Gentiloni that France is serious about cutting spending and getting out of the excessive deficit procedure. After the meetings, he told reporters that he had presented “a difficult budget” to ensure that France remains credible among fellow eurozone members.
That refrain is reportedly starting to irritate Macron, as it calls into question the president’s economic legacy over the past seven years. 
Former Finance Minister Bruno Le Maire went as far as accusing Barnier’s government of deliberately increasing the deficit for this year as part of a Machiavellian ploy to highlight the scale of the problem.
Other experts also believe Barnier is overdoing it. Jérôme Creel, an economist at the French Economic Observatory, said Barnier is cutting spending and raising taxes more sharply than the European Commission requires, and that this “austerity” move could backfire. 
“We are doing more than we were asked to do to signal our intention to move definitively in the right direction, but at the risk of undermining growth. And that’s still problematic,” Creel said.
Jason Wiels contributed to this report.