Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Lawmakers from the far left and right of France's political
Speaker 2: spectrum are set to combine and topple Prime Minister Michelle
Speaker 2: Barnier's government tonight in at Paris. The National Assembly set
Speaker 2: to reconvene as we speak, and that is when we're
Speaker 2: supposed to get the result. Covering it all is Stephen Carroll,
Speaker 2: Bloomberg Radio Daybreak Europe anchor. Stephen joins us from our
Speaker 2: Paris bureau. Stephen, good to see you this evening. Earlier
Speaker 2: in your career, you spent a decade working for France
Speaker 2: twenty four Television in Paris. You've interviewed President Emmanuel Macron,
Speaker 2: Prime Minister Michelle Barnier. How did we get to where
Speaker 2: we are today?
Speaker 1: I mean, the short answer is that Emmanuel Macron called
Speaker 1: an election in June. He wasn't happy with how his
Speaker 1: party date in European Parliament elections, so he decided to
Speaker 1: go to the country, dissolve the parliament, the National Assembly
Speaker 1: call elections, thinking that it would reinforce his position give
Speaker 1: French people the choice of who they wanted to govern.
Speaker 1: And fortunately French people didn't have the same idea. And
Speaker 1: what he ended up with was fewer numbers of MPs
Speaker 1: in the National Assembly and a very fractured parliament. That
Speaker 1: left three large groupings, the Marie Lepens National Rally on
Speaker 1: the right, the far right, his Centrist group which he
Speaker 1: picked up some of the center right party as well,
Speaker 1: and this left wing alliance which is the biggest group
Speaker 1: in the parliament as well. Nobody had a majority, nobody
Speaker 1: could govern. Then he had to try and find a
Speaker 1: government because his job as president he gets to nominate
Speaker 1: the Prime Minister and set the agenda for policy. He
Speaker 1: picked Michel Baunier, this man who has had a storied
Speaker 1: fifty year career in French politics. He's been a minister,
Speaker 1: He's been a European commissioner, he was the ease chief
Speaker 1: negotiator on Brexit. He is a statesman. He brings with
Speaker 1: him He's not from Macron's political family, so he brings
Speaker 1: with him the sense of somebody who is above the
Speaker 1: fray of politics. He's not currently an elected politician, so
Speaker 1: got him in to try and run the government to
Speaker 1: pass a budget, which was the biggest immediate concern. He
Speaker 1: brought the budget to Parliament, tried to negotiate a compromise
Speaker 1: with the various groups. Wasn't able to do that. Used
Speaker 1: a constitutional provision that allows them to force it through parliament.
Speaker 1: But unfortunately, the downside of using that provision is is
Speaker 1: that the opposition can call a vote of no confidence
Speaker 1: in the government. And that's where we are now, and
Speaker 1: they're currently voting. After about two and a half hours
Speaker 1: of debate in the French Parliament, lots of views expressed.
Speaker 1: Mitelvannie got up at the end to lay out his
Speaker 1: position to saying it's a moment of truth and responsibility
Speaker 1: for France and we'll find out if anyone listened to
Speaker 1: him in just a couple of minutes time.
Speaker 3: And Stephen, what happens in the immediate aftermath if the
Speaker 3: French government loses the no confidence vote.
Speaker 1: So we will. The first thing that happens is the
Speaker 1: government has to resign, right, so Mite Albanni and all
Speaker 1: of his ministers will present their resignation to the President.
Speaker 1: It then turns to the president who will have to
Speaker 1: appoint the next government. But the more immediate problem, because
Speaker 1: there's no deadline for when Emmanuel Macron would have to
Speaker 1: pick a new prime minister to lead and form a
Speaker 1: new government. The more immediate problem is is France's current
Speaker 1: budget runs out at the end of the year, so
Speaker 1: then we roll over into twenty twenty five and into
Speaker 1: relative political unknown. There won't be a shutdown, and it's
Speaker 1: actually been funny and a lot of the discourse here
Speaker 1: people that keep mentioning, oh, it won't be like the
Speaker 1: US government.
Speaker 2: Shot, yeah, that's our problem.
Speaker 1: They'll still keep collecting. Yeah, they'll still keep collecting taxes.
Speaker 1: Even using the word shutdown in French was quite funny.
Speaker 1: But they're still going to collect taxes. Public services will
Speaker 1: still run. But essentially what they'll do is they'll take
Speaker 1: the twenty twenty four budget, carve it up into twelve pieces,
Speaker 1: and each department will get a twelfth of their budget
Speaker 1: every month. That that presents, as you might imagine, all
Speaker 1: sorts of problems, because it's very difficult to run the
Speaker 1: state on that sort of month to month basis. It's
Speaker 1: not like working on your overdraft. And the other problem
Speaker 1: is is that there were a load of measures in
Speaker 1: this budget that we're going to change things, both for
Speaker 1: taxpayers and for welfare recipients. So for taxpayers, the tax
Speaker 1: thresholds for income tax were due to rise and line
Speaker 1: with inflation. If that doesn't happen, everyone's got well not everyone,
Speaker 1: but eighteen million households are going to be paying more
Speaker 1: tax from January. There's good news though for pensioners. They
Speaker 1: were due to get their inflation linked increase delayed after
Speaker 1: January to later in the year. They actually will get
Speaker 1: their inflation linked increase in January if there isn't a budget.
Speaker 1: But all of this presents the same problem that France
Speaker 1: has had since the middle of last year. It's budget
Speaker 1: death as it is too large for EU budget rules,
Speaker 1: but also to be able to convince markets, and we've
Speaker 1: seen France's international borrowing costs rise as a result. Part
Speaker 1: of the issue now has to be is they need
Speaker 1: to come up with a credible fiscal plan for the
Speaker 1: country so as to cam the fears that exist on
Speaker 1: the markets. And the rise in borrowing costs has been moderate,
Speaker 1: hasn't got to quite extremes yet, but it sets up
Speaker 1: a huge task for whoever's going to take over after
Speaker 1: Michel Bagni, if indeed he is forced to resign, to
Speaker 1: whether or not they can put together the plan and
Speaker 1: achieve something that a man who was legendary for his
Speaker 1: negotiation skills, wasn't able.
Speaker 2: To well, we are waiting to hear from the National
Speaker 2: Assembly about the results of that vote. We will bring
Speaker 2: that to you imminently as we do get the results. Stephen,
Speaker 2: what about other names that at this point have emerged
Speaker 2: to take over as prime minister? What can you tell
Speaker 2: us there, Hi?
Speaker 1: Michel Varnier ruled himself out in an interview on French
Speaker 1: television last night, which is important because it had been
Speaker 1: something that had been speculated that perhaps an annual macron
Speaker 1: might just say we'll give it another go. By the way,
Speaker 1: the last time this happened when the only time since
Speaker 1: the current constitution has been in force in France, which
Speaker 1: is since nineteen fifty eight, the only time it's happened
Speaker 1: that a government has lost a vote of no confidence
Speaker 1: was in nineteen sixty two.
Speaker 2: Stephen, I'm sorry to cut you off. We're getting again,
Speaker 2: We're getting a result right now. The French government falls
Speaker 2: after no confidence vote in Parliament. The French no commindant's
Speaker 2: motion passes with three hundred and thirty one votes. Two
Speaker 2: hundred and eighty eight were needed, not too surprising given
Speaker 2: how closely you followed this, but what's your immediate reaction.
Speaker 1: I mean, look, it means there wasn't any defections. Michelle
Speaker 1: Barnier's call for responsibility doesn't seem to have won over
Speaker 1: any of the MPs he was hoping. He was particularly
Speaker 1: targeting the center left Party, the Socialist Party, who've been
Speaker 1: in government in France many times in recent history. The
Speaker 1: question of whether or not some of those MPs might
Speaker 1: be willing to abstain, for example, from this vote to
Speaker 1: try and save the government. He doesn't seem to have
Speaker 1: convinced them with this message. That's the number in and
Speaker 1: around what we expected, because it's basically if you add
Speaker 1: together the Left Ring Alliance and Marion Lea Penn's far
Speaker 1: right National Rally, those parties put together give us that
Speaker 1: total of in and around three hundred and thirty. So
Speaker 1: it looks like that they didn't manage to convince anyone
Speaker 1: to cross the line. It's a result that's pretty much
Speaker 1: then in line with expectations, but now opens up the
Speaker 1: question of what happens next. What will Emmanuel Macron do.
Speaker 1: He's just landed back in France in the past few
Speaker 1: minutes from visit to Saudi Arabia, where he was trying
Speaker 1: to brush off a lot of these political questions at
Speaker 1: home and continue on with international affairs to little avail
Speaker 1: as everyone just wanted to ask him what he planned
Speaker 1: to do after this vote went through. He had been
Speaker 1: asked on many occasions whether or not he might resign,
Speaker 1: and he says that's not an issue, it's not even
Speaker 1: in question that he would do that. Of course, his
Speaker 1: term runs till twenty twenty seven, so we now set
Speaker 1: ourselves up for the timeline where the French President can
Speaker 1: take as long as he likes to appoint a new government.
Speaker 1: We don't think he's going to leave it that long,
Speaker 1: but it does plunge us into a sort of political vacuum.
Speaker 1: Now we'll have to have a caretaker government to keep
Speaker 1: current affairs running, but it's going to make those big
Speaker 1: challenges like dealing with the budget even more difficult.
Speaker 3: Stephen, do we have a good idea of who would
Speaker 3: likely be the next prime minister in what that new
Speaker 3: government would look like.
Speaker 1: We don't. There are a couple of names that have
Speaker 1: been floated around, but it's not a specific list of
Speaker 1: people that have been floated. You could imagine that Emmanuel
Speaker 1: Macron would try and pick from, if not his own
Speaker 1: political family, those who've already said that they would ally
Speaker 1: with him. There had been a question before Michel Barnier
Speaker 1: was picked as to whether he might be able to
Speaker 1: pick a politician from the Socialist Party, that center left
Speaker 1: party and thus bring them into this center alliance that
Speaker 1: he was trying to create. But they couldn't agree between
Speaker 1: the left wing parties on the same candidate that Emmanuel
Speaker 1: Macron want wanted. That was Bonno Kaznov, who's a former
Speaker 1: interior minister. He was the one who had been mentioned
Speaker 1: last time around. This was in the discussions that led
Speaker 1: up to Michel Barnier being picked. But the names that
Speaker 1: are out there now are in the realm of speculation.
Speaker 1: There's no rallied support around someone. There's no obvious candidate
Speaker 1: for who would take over, because the challenge facing the
Speaker 1: person who takes on that they have the same parliamentary
Speaker 1: match to deal with. Michel Barnier was dealt a very
Speaker 1: difficult hand. He didn't have a majority in parliament. He
Speaker 1: did his best to try and build a way of working.
Speaker 1: He always said that he was leaving it to parliament
Speaker 1: to be able to legislate and negotiate on important matters.
Speaker 1: That's failed. You have to ask who would be brave
Speaker 1: enough to step into those shoes, because it's a pretty
Speaker 1: nasty hand of cards to be hand them.
Speaker 2: That's exactly where I want to go. We're getting some
Speaker 2: commentary from France unbowed lawmaker Mattil Panaut, who says that quote,
Speaker 2: finally the Barnier government has fallen along with its violent budget.
Speaker 2: Today is a historic day. What does a budget look
Speaker 2: like in France after this process?
Speaker 1: Well, look, we go into this situation where we're going
Speaker 1: to be going month to month from January. There's very
Speaker 1: little hope that even if a government was formed tomorrow
Speaker 1: that they would be able to resuscitate this current budget
Speaker 1: plan and actually get anything in place by the end
Speaker 1: of the year. So either way, when it comes to
Speaker 1: the end the thirty first of December, we're rolling into
Speaker 1: this suppose minimum service French state that's going to be
Speaker 1: in place from January of next year, and that's going
Speaker 1: to bring back in those questions around tax rises for
Speaker 1: a lot of households who are paying income tax, those
Speaker 1: rises for pensions as well, and there were specific things
Speaker 1: like extra financial aid for farmers which now won't be
Speaker 1: paid out because that won't go into the budget bill.
Speaker 1: So the next immediate step is that there will be
Speaker 1: a motion that will need to be passed in Parliament
Speaker 1: to I suppose activate this temporary measures to keep the
Speaker 1: state running the lights on, if you will. There's not
Speaker 1: expected to be any major opposition to that because no
Speaker 1: French politician wants to be responsible for, you know, no
Speaker 1: welfare payments being paid early next year, So there's not
Speaker 1: an expectation that we will have anything but this month
Speaker 1: to month situation operating from January with a larger budget
Speaker 1: deficit and with the pressure that's going to put on
Speaker 1: France's borrowing costs and international markets as well.
Speaker 2: We're speaking with Stephen Carrol, Bloomberg Radio Daybreak Europe anchor,
Speaker 2: joining us from our Paris bureau. Stephen Carroll has about
Speaker 2: a decade of experience covering French politics working for France
Speaker 2: twenty four TV in Paris. I do also want to
Speaker 2: bring in Steven Englander, global head G ten x FX
Speaker 2: research at Standard Chartered Bank. He joined us from New York.
Speaker 2: Steven Englander talking a little bit about the market reaction
Speaker 2: here French bond future is now pairing an earlier advance.
Speaker 2: After the vote result, the europaired gains to trade little
Speaker 2: change that around a dollar five. How are you looking
Speaker 2: at market reaction here? What's the trade?
Speaker 4: Well, I don't think that there's any immediate trade. We
Speaker 4: started seeing French freads widen around the middle of November.
Speaker 4: The euro has probably about a percent lower than it
Speaker 4: would have been absent you know, this issue. I think
Speaker 4: the last few days the market has reconciled itself to
Speaker 4: a kind of very much a caretaker government. But also
Speaker 4: you know, with what the other Steve mentioned, which is
Speaker 4: that the budget itself is kind of an austerity budget
Speaker 4: because nothing's indexed in nominal terms. It's all the same
Speaker 4: level of spending, so it's a lower real spending. So
Speaker 4: from from a market perspective, this isn't a disaster right now.
Speaker 4: If it does become a political crisis, like even deeper,
Speaker 4: or if it spills over to the rest of Europe,
Speaker 4: that would become much more intense. And you know, as
Speaker 4: we've seen here, typically these things get resolved because one
Speaker 4: side or another decides that it's taking a political beating
Speaker 4: being seen as responsible for you know, whatever, checks don't
Speaker 4: go out or whatever.
Speaker 3: Stephn Engler I was going to follow up and ask
Speaker 3: does this affect ECB policy at all? Is the Central
Speaker 3: Bank thinking about kind of this uncertainty around what happens
Speaker 3: next with the French budget.
Speaker 4: I think the ECB is more you know, say, cognizant
Speaker 4: of these issues right there. You know, we just hurt
Speaker 4: Powell sort of, you know, drawing strict lines between fiscal
Speaker 4: and and you know, government and the Central Bank. I
Speaker 4: don't think the ECB has those strict lines going back
Speaker 4: to the European fiscal crisis, so you know, maybe a
Speaker 4: little more likely to cut to make things easier. But
Speaker 4: I think initially at least their focus will be on
Speaker 4: trying to prevent any kind of spillover into the rest
Speaker 4: of Europe and reassure markets that they're ready to take
Speaker 4: action if anything would happen.
Speaker 2: Steven England or when you say spillover, do you mean
Speaker 2: political spillover? Do you mean spillover when it comes to markets?
Speaker 2: How do you see it?
Speaker 4: Well? I think in the first instance, if we start
Speaker 4: seeing Italian spreads going up, and you know, Portuguese spreads
Speaker 4: going up, that's exactly what they don't want and what
Speaker 4: they would react to. Initially, it's a little bit more
Speaker 4: delicate to try and intervene on French spreads when it's
Speaker 4: a French political crisis. But for the rest of Europe,
Speaker 4: I think their role is unambiguous.
Speaker 2: I want to bring back in Stephen Carroll, who's in
Speaker 2: our pair of bureau. The far left France Unbound party
Speaker 2: calls for Emmanuel Macron to resign. I know you've been
Speaker 2: getting caught up just in the last few minutes, Stephen.
Speaker 2: What sticks out to you as far as other names
Speaker 2: that potentially have emerged, or what the political future of
Speaker 2: Macron is.
Speaker 1: I mean, look, Emmanuel Macron has brushed off any suggestion
Speaker 1: that he will resign. There's no way that he can
Speaker 1: be forced to. This vote doesn't affect his position in power,
Speaker 1: and he's due to stay in office until twenty twenty seven.
Speaker 1: A person who very keenly would like him to resign,
Speaker 1: and we've seen that on the decision that she has
Speaker 1: made in supporting this no confidence motion is Marie Lepenn,
Speaker 1: the far right candor's course was the person who went
Speaker 1: up against Macron the last two presidential elections. Her support
Speaker 1: has been growing slowly and the margin by which Emmanuel
Speaker 1: Macron defeated her in the last presidential elections, was much
Speaker 1: smaller than in twenty seventeen. So she would very much
Speaker 1: like for there to be an early presidential election to
Speaker 1: get a chance for her to be a to get
Speaker 1: a shot at the presidency. Now it's not unusual that
Speaker 1: we'll have that same call from the far left. They're
Speaker 1: actually one of the biggest groups in Parliament, so they
Speaker 1: know that they have also significant support and that's been
Speaker 1: the story of how politics has evolved under Emmanuel Macron
Speaker 1: in poos who've seen greater support for far right and
Speaker 1: far left parties as a result. Some of those other
Speaker 1: names that you mentioned for prime minister, I mentioned Bernard
Speaker 1: Casnov a minute ago, the former socialist prime minister and
Speaker 1: Interior minister as well. Perhaps the left might be able
Speaker 1: to agree on him perhaps forming a government and that
Speaker 1: would open up the left side of the Parliament to
Speaker 1: be able to perhaps form a centrist coalition. Other ones
Speaker 1: that we have been talking about is the likes of
Speaker 1: Francois Bairrou, who is a centrist politician and early supporter
Speaker 1: of Emmanuel Macron way back when he ran for presidents
Speaker 1: the first time around. As well, quite a similar profile
Speaker 1: in some ways to Michelle Bannier. He's been around a
Speaker 1: long time in French politics. He has a certain amount
Speaker 1: of respect for the positions that he's had as well,
Speaker 1: and perhaps he could be someone who could draw people
Speaker 1: to either. But he's not really outside of the current
Speaker 1: alliance that mac Grown's in. You think this because he's
Speaker 1: already tried Michelle Bangiy someone who's already out of domestic politics,
Speaker 1: that perhaps he might be looking for someone a little
Speaker 1: bit bigger next time around that'll pull in new votes
Speaker 1: and new supports, so that'll be able to create some
Speaker 1: currency in parliament as well.
Speaker 2: Stephen Carroll, we're gonna have to let you go. I
Speaker 2: know you've got a busy night ahead of you. We
Speaker 2: definitely appreciate you taking the time and it joining us.
Speaker 2: That's Stephen Carroll of a Bloomberg Daybreak Europe. He's an
Speaker 2: anchor for Bloomberg Radio, joining us from Paris. So do
Speaker 2: you want to get back to Stephen England or Global
Speaker 2: head g TENFX Research at Standard Charter Bank, joining us
Speaker 2: from New York. The front French stocks closing in on
Speaker 2: their worst year since twenty ten, although the CAC forty
Speaker 2: today seemed to shrug off this news. It rose seven
Speaker 2: tenths of one percent. Can you talk about the equity
Speaker 2: market reaction around this at all?
Speaker 4: Well, you know, I think there's just a lot of
Speaker 4: uncertainty there, and you know, obviously there will be pockets
Speaker 4: where maybe they were, you know, expecting some help from
Speaker 4: the budget and that's not going to come. But I
Speaker 4: think it's more broad macro uncertainty than there is any
Speaker 4: you know, specific equity market risk. What we could see
Speaker 4: is is, you know, right now the turnover budget, it's
Speaker 4: sort of an austerity budget if it does turn out
Speaker 4: that they say reached an agreement, but it's much more expansionary.
Speaker 4: You know, we could see an equity market reaction, but
Speaker 4: we could also see markets looking at the fiscal situation
Speaker 4: and being a little concern.
Speaker 3: What about the outlook here for US versus Europe. We've
Speaker 3: obviously been watching europaroity. We're not there quite yet, but
Speaker 3: there's a lot of talk about the US dollar continuing
Speaker 3: to strengthen against other countries, other regions, including Europe. What
Speaker 3: are you kind of watching levels wise, and does this
Speaker 3: news in France kind of change the narrative at all?
Speaker 4: Well, dook, I think it does put U P. I mean,
Speaker 4: it obviously has put parody a little bit closer, if anything.
Speaker 4: What's surprising, you know, my guess is that we saw
Speaker 4: one percent, maybe slightly less three quarters of a percent
Speaker 4: impact on the Euro. So the market is seeing it
Speaker 4: as an issue. It's not really seeing it as a
Speaker 4: market crisis. If something were to develop that really led
Speaker 4: to prolonged political uncertainty, that would be much harsher. But
Speaker 4: I you know, till now, the market is sort of
Speaker 4: seeing it as a bad but not as a as
Speaker 4: a very bad
Speaker 2: Stephen England are global head G ten FX Research at
Speaker 2: Standard Charter Bank, joining us from New York