(Bloomberg) -- French President Emmanuel Macron picked Michel Barnier as prime minister, entrusting the EU’s former Brexit negotiator with the delicate task of marshaling critical finance bills.
The appointment of the conservative politician is a first step toward ending months of political uncertainty in France after snap elections delivered a National Assembly where no group has the majority required to govern alone.
France’s benchmark CAC 40 index trimmed its losses after the news, still down 0.4% on the day. Banking stocks were the biggest gainers, with Societe Generale SA up 3.6% and BNP Paribas SA up 2.7%. France’s 10-year yield premium over equivalent German debt narrowed on the news.
In Barnier, 73, the French president has opted for someone who has largely avoided the bickering of front-line politics in recent months, giving him a chance of not being too unpalatable for any party. The leftist New Popular Front alliance had made a claim to lead the new government after winning the most seats, but Macron said their candidate, Lucie Castets, would have been immediately ejected in a no-confidence vote by opposition lawmakers.
“This appointment comes after an unprecedented cycle of consultations during which, in accordance with his constitutional duty, the president ensured that the prime minister and the government to come would meet the conditions to be as stable as possible,” Macron’s office said.
The president in France is head of state, in charge of the armed forces and foreign policy, and nominates the prime minister and members of the government. The prime minister is in charge of the day-to-day implementation of policies and can be toppled by a no-confidence vote in the National Assembly.
In recent days, Marine Le Pen’s National Rally has emerged as a kingmaker in the negotiations, warning it would censure many of the other political figures whose names were touted for prime minister. But officials from the far right were more nuanced on Barnier, saying they could wait to see what policies he proposes.
“We demand that the new prime minister respect the 11 million French people who voted National Rally, that he respect them and their ideas,” Le Pen said on X. “We’ll pay close attention to his policies and we’ll be watchful that the aspirations of our voters, who represent a third of French people, are heard and respected.”
Shortly after Barnier was appointed, the chair of the National Assembly, Yael Braun-Pivet, called for an extraordinary parliamentary session for the new prime minister to present his priorities and face lawmaker questions.
Barnier faces the immediate challenge of forming a cabinet that can bridge the ideological rifts between the left, right and centrist blocs in parliament. Achieving a balance will be crucial to his ability to withstand no-confidence votes to smoothly adopt a 2025 budget in the coming weeks. Opposition parties in France have a tradition of voting against finance bills whatever the circumstances.
To avoid a majority of lawmakers uniting against him, Barnier must also find a way to navigate demands in other key policy areas including pensions and the minimum wage. A broad array of parties campaigned in the legislative elections on pledges to at least partly undo Macron’s 2023 law raising the retirement age, and increase household incomes through measures such as tax cuts and increasing the minimum wage.
Macron’s centrist group, however, has vowed to resist efforts to unpick his pro-business reforms of the last seven years.
Financial markets are closely watching the political gymnastics in Paris. Even before the election in June, France’s budget was in the spotlight after the deficit swelled to 5.5% of gross domestic product in 2023, prompting S&P Global Ratings to downgrade the country and the European Union to instigate a procedure to enforce greater fiscal discipline.
“Markets will probably be relieved by prospects that France could finally find a new government after all,” said Commerzbank AG’s head of rates strategy Christoph Rieger. “But not having seen or heard much of Barnier since Brexit we will wait to see what he stands for, and if he can survive no-confidence votes without major concessions to the left.”
When Macron dissolved the National Assembly in June after getting trounced by the far-right in EU elections, investors dumped French assets as they saw the risk of opposition parties triumphing and implementing costly manifesto pledges that risked further inflating the country’s debt. The premium France pays on 10-year debt compared with Germany’s surged and remains well above pre-election levels, while French stocks are yet to recover losses in comparison to the rest of the European Union.
Barnier will inherit a blueprint for the 2025 budget from the outgoing caretaker government with unchanged caps on spending that aim to help France meet a target to narrow its deficit below 3% of economic output by 2027. But the prime minister’s new team will have a free hand to make changes before presenting the bill by the start of October. France is also due to send medium-term fiscal plans to Brussels later this month under the EU’s revamped fiscal rules.
The NPF, which campaigned on a platform of massive increases in spending, is likely to be Barnier’s biggest obstacle to consensus on public finances. Some of the group’s leaders have slammed Macron’s decision not to appoint Castets as a “denial of democracy,” and others have said they would immediately propose a vote to bring down a government not from their own ranks.
France’s new prime minister will also have to reckon with an emboldened far-right in the National Assembly after Le Pen’s party increased its share of seats and allied with a faction of the center right. She has said her group would seek to topple any New Popular Front government but has expressed less vehement opposition to other parties.
Traditional conservatives will be more cooperative with Barnier, a figurehead of what remains of their party who served in the governments of Nicolas Sarkozy and Jacques Chirac. Macron’s centrist lawmakers will also likely be accommodative, having already struck deal with some on the right to allow for the reelection of centrist Yael Braun-Pivet as president of the National Assembly.
--With assistance from Constantine Courcoulas, Blaise Robinson and Tom Fevrier.
(Updates with explanation of the premier’s role in the sixth paragraph.)
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