France sovereign debt reached a record €3.228 trillion, amounting to 112% of GDP in June, well above the 60% cap set by EU regulations. France growing debt have slowly been chipping away at investors’ confidence in French bonds.

After Macron called a snap election in June resulting in a hung parliament, risk premiums on French 10-year bonds have shot up. A symbolic milestone was hit on Dec 2nd, when Greek bond yields briefly surpassed that of France, showing how Europe’s economic history has been turned on its head since the 2012 Eurozone crisis.

Former EU Brexit negotiator, Michel Barnier became France’s new prime minister on Sep. 5th on the weakest mandate in the history of France’s fifth Republic. Barnier is currently presiding over a minority government with only 37% of seats in the National Assembly, while Les Républicains’, the party of the PM himself only has the support of 6.2% of the electorate. France’s feeble fiscal standing and weak government has set the stage for the current political crisis.

Despite the inability of the government to pass legislation on its own, Barnier has proposed $63 billion in tax hikes and spending cuts in the new budget in an attempt to lower France debt burden. The budget has brought uproar from both the left Nouveau Front Populaire Alliance and Marine le Pen’s Resemblement National party. As a result, both blocks tabled a motion of no-confidence against Barnier’s government on Monday.

Wednesday at 4 PM, deliberation will start on the motion, and at about 8 PM the French parliament will vote on whether to topple the government. The chances of survival for Barnier are slim-to-none as Le Pen has already stated that she will vote with the Left on the matter. If Barner’s government is overthrown, the Budget proposal goes directly in the shredder.

The Republic is truly in unchartered territory. Speaking with French economists and journalists, nobody knows for sure what will happen if the vote-of-no confidence is successful – something that hasn’t happened since 1962.

Due to constitutional restraints, Macron can’t call another election until the summer, meaning France might be without a prime minister for weeks or even months if the divided parliament can’t find another prime minister.

The deadlock means that France almost certainly will enter the new year without a Budget for 2025. However, unlike the U.S, this won’t trigger a government shutdown. Stop-gap measures enshrined in France’s constitution means that a care-taker government can put forward a ‘special law’ which extend the previous year’s budget for a few months. The stop-gap bill would also need parliamentary approval, but Marine Le Pen has indicated that she is willing to support the measure under a few conditions.

The stop-gap budget will be slightly restrictive as tax scales will not be adjusted for inflation, but not anywhere near Barnier’s savings proposal, and not enough to stop France’s deficit from expanding.

There doesn’t seem to be a clear path forward for France’s economy until President Macron is out of office. Overall, whichever Prime Minister succeeds Barnier, they will be highly political vulnerable, and they will be forced to make further concessions to either the Left or Far-right. As such, the next 2025 Budget will have to be more relaxed on proposed cuts to the detriment of reining in sovereign debt.