France is falling apart, and the global economy is in danger of being collateral damage. Marine Le Pen, a far-right powerhouse, teamed up with leftist lawmakers to pull off a political stunt that toppled Prime Minister Michel Barnier’s three-month-old government.
This was a full-blown crisis. Lawmakers in the National Assembly passed a no-confidence vote, sending Barnier packing in record time. That was the shortest tenure for a French prime minister since the Fifth Republic was established in 1958.
The chaos has left France without a stable government and no clear way to fix things. And investors are running scared. While US equities made a record high, Bitcoin stumbled a bit and has since remained under $100,000.
Risk premiums on French assets have hit highs not seen in more than a decade. The CAC 40 Index, France’s main stock benchmark, is down 1.5% this year, making it one of the weakest performers among major markets. Borrowing costs have surged past those of Greece, a country notorious for its economic woes.
Global economy feels the impact
France’s instability is felt across the global economy, adding to an already precarious situation. In Germany, industrial production unexpectedly fell in October, a rough start to the final quarter of the year. Germany, Europe’s largest economy, was already struggling with a sluggish industrial sector. Now, even the services industry is showing signs of weakness, according to recent business surveys.
The European Central Bank isn’t helping much. Christine Lagarde says the fight against inflation isn’t over yet, even though the ECB is nearing the end of its tightening cycle. France’s instability only complicates the ECB’s plans to stabilize the eurozone. Investors are jittery, and the eurozone’s overall economic health is looking more fragile by the day.
Meanwhile, across the Atlantic, the U.S. labor market is showing mixed signals. Job growth picked up in November, but the unemployment rate also rose as long-term joblessness reached a three-year high. Industries like healthcare, hospitality, and government added jobs, while retail saw its steepest cuts in a year. Though this shows a cooling economy, it’s not in free fall.
The Organization for Economic Cooperation and Development (OECD) has warned that global risks are piling up. Trade tensions, political instability, and ballooning debt are all threatening the global economy’s resilience.
French President Emmanuel Macron is scrambling to control the damage. In a televised speech, he insisted, “The mandate you gave me democratically is for five years, and I will exercise it fully.” That’s easy to say, but much harder to deliver.
His term ends in 2027, but it’s unclear how he can lead effectively with such a fractured National Assembly. He promised to appoint a new premier within days, someone who could form a “government of general interest.” However, given the divisions in parliament, that seems like wishful thinking.
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