Eurasia's Mujtaba Rahman on France's Path to Stability

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00:00When you're talking to your clients, what do they fear the most? Is it a left-wing government and a

00:05spiralling deficit? Is it 18 more months of uncertainty? Or is it snap elections and maybe

00:11an open door to the right wing? It's all of the above. I think the biggest concern is a left-wing

00:17government led by the LFI, Le France Insoumis, so Jean-Luc Mélenchon, who demonstrated

00:22last summer, he was very ideological on the questions of economic policy. I think they're

00:29very worried about an early election that could also bring Jordan Bardella to power in the Matignon

00:34and what that cohabitation with Emmanuel Macron would look like. And then I think they're just

00:38worried about the fragile nature of the public finances and debt sustainability if there is no

00:43equilibrium to bring down the deficit before a presidential election in 2027. And you talk to

00:49everyone at the Elysee. Who are you hearing is going to be the next PM then? So I think there are a number

00:54of candidates that are in the mix. I think more important than the name of the PM is the political

01:00or apolitical identity of the prime minister. There's a lot of pressure, as you were just saying,

01:06for a left-wing prime minister. I don't think that's where Macron will go, because I think that

01:12will risk undermining the very fragile bits of the minority coalition, not least their republicans.

01:18So I think he's probably going to look to choose an elder statesman or elder stateswoman, somebody a bit

01:24more distant from politics. Some of the names in contention, I understand, are Jean-Louis Bourleau,

01:32Gerard Lachet, who is the LR's head of the Senate, and another individual known as Thierry Baudet,

01:40who is the head of the Economic and Social Committee. These are some of the names that are in the mix,

01:44but ultimately Macron will make the decision tomorrow evening.

01:46And relatively unknown names, really, to the outside world, those who aren't plugged into

01:52all the details of French politics. But I do wonder, when you talk about that centrist bloc

01:58that could be offended by a suspension of the pension reforms, is there really still a centrist

02:03alliance to speak of?

02:04It's much more fragile, and I think this will now be the challenge that the new prime minister has to

02:10square, because effectively what Sébastien Le Corneau committed to yesterday was a line-by-line

02:16negotiation, not just on one, but two budgets. Remember, there's the budget proper and then

02:22the Social Security budget. They're not going to use 49.3, which is the constitutional provision

02:28that would allow the government to impose a budget without a vote in Parliament. This will be negotiated

02:34in Parliament. And so squaring this circle where there are commitments to unwind pension reform,

02:41there will be concessions on taxes that the socialists are demanding, while keeping the

02:46bits of the Macron middle in play, is going to be a very narrow and hazardous path.

02:51But do you think those concessions on taxes, the suspension of the pension reforms as well,

02:56is going to be acceptable to Brussels, never mind the investors and ratings agencies?

03:00So Brussels is not going to make a determination on France's public finances until the end of the

03:06first quarter next year. I've been speaking to people in the European Commission and the different

03:10parts of the EU institutions. They're watching what's happening in France. But I think their

03:14general view is you need a government to form and that government to then begin the hard work of

03:20deficit reduction. It's not going to be a 4.6% target that Beirut was originally aiming for. It

03:27probably won't even be the 4.8% of GDP target Le Corneau was aiming for. Probably what we're going to get

03:33is a deficit just below 5% of GDP. And I suspect Brussels, they won't be thrilled about that. But

03:40what they will prefer is a government in place that's committing to deficit reduction.

03:45But is there a sense that Brussels turns a blind eye to fatter deficits to keep Marine Le Pen out of

03:50power? I don't know whether it's to keep Le Pen out of power, but I think they accept that the French

03:55political system ultimately has to work out a solution that delivers a deficit reduction that is

04:02politically sustainable. Of course, they would like more ambition, not less. But I suspect where,

04:07as I say, we're moving to is a deficit just below 5% of GDP.

04:09But that seems so hard to sort out. Do you actually think that it's going to take the

04:14bond vigilantes to wade in here to break this stalemate?

04:18I think market pressure will be helpful and it would certainly help those within the minority

04:24government that are pushing for more ambitious deficit reduction. But the problem is, Lizzie,

04:30with this National Assembly, the socialists are the swing bloc. And in order for a deal to be done,

04:37some of their concessions are going to need to be respected. And first of, I think, of all of those

04:42concessions is big movement on pension reform. And I think now Le Corneau has opened the door

04:46to that concession. I think Macron has effectively accepted there will be movement on pension reform.

04:52And so that's what the politics is demanding. And that's where I think this debate will now go.

04:56Just finally, we've seen some of Emmanuel Macron's longtime allies, the likes of Edouard Philippe,

05:03the likes of Gabriel Attal, basically disowning him. I wonder if that makes you think that the

05:08real view here in Paris is that ultimately Macron is toast.

05:13I think on Monday night, Macron was very close to becoming, again, quite reckless and calling an

05:19early election. I think he was advised by many people in the Elysée that if he did that and the

05:25outcome of the election was another divided assembly, no clear majority, the pressure on him to resign

05:32would have been absolutely immense. And it's only for that reason he's conceded not only to

05:38potentially open up the possibility of a left-wing prime minister, but also put pension reform

05:44on the chopping block. So I think he's desperate to avoid resignation of the presidency. And I think

05:50it's for that reason he's chosen not to go down that path of an early election.

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