France’s government collapses – could it trigger the next euro crisis?

France’s government has toppled after losing a vote of no-confidence, plunging the euro zone’s second-largest economy into turmoil. Is this 2012 all over again and should Europe be worried?

Michel Barnier, France's prime minister, speaks during a no-confidence debate at the National Assembly in Paris
(Image credit: Nathan Laine/Bloomberg via Getty Images)

“Europe once again stands at the edge of the precipice, staring into the abyss below,” says Jeremy Warner in The Telegraph. The 2009-2012 eurozone crisis was centred on “tiny” Greece – just think what debt problems in a major economy such as France could do to the single currency.

French prime minister Michel Barnier’s three-month-old minority government has collapsed after being ousted in a vote of no-confidence on 4 December, following which Barnier resigned. Barnier’s “fragile” administration had been trying to close a fiscal deficit of 6.1% of GDP with €60billion in spending cuts and tax hikes, says Liz Alderman in The New York Times.

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The real risk for the eurozone will only come if Marine Le Pen’s far-right party takes power in a future election. While Le Pen no longer supports leaving the euro, her party will be “much less committed to cooperating with the EU” to keep the currency bloc functioning smoothly. If things do get out of hand, then expect the European Central Bank (ECB) to deploy its Transmission Protection Instrument (TPI), says Johanna Treeck in Politico. The TPI allows the ECB to buy up government bonds if it thinks bond markets have become “disorderly”. Yet the “bar for such intervention is high” – probably requiring French debt to hit somewhere above 200 basis points of spread over German bunds, compared with today’s 85 points.

What the crisis in France means for Macron

Macron has pledged to appoint a new prime minister within days and vows to stay in office until the end of his term in 2027. Macron has three bad options to resolve the political deadlock, says Pierre Briançon for Breakingviews. He could try to repeat the failed Barnier trick, appointing a “temperate centrist” willing to do budget deals with the far-left or far-right. Alternatively, he could pick a far-left or far-right administration, purely to demonstrate that the populists are also “unable to govern”. Finally, he could conclude that he himself is the problem and resign, plunging France into the uncertainty of a snap presidential election.


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Markets editor

Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019. 

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere. 

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful. 

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.