UBS laments political uncertainty in France weeks ahead of 2025 budget By Investing.com

Investing.com – The political context in France remains uncertain as the appointment of a new prime minister is still expected, as UBS pointed out in a note published on Wednesday.

The bank’s analysts reminded investors that following President Emmanuel Macron’s refusal to appoint Lucie Castets, the candidate proposed by the left-wing New Popular Front (NFP) alliance, as prime minister, the political situation remains tense as the country is preparing for the new school year. and the Paralympic Games.

President Macron’s rejection of the NFP candidate puts France in an unprecedented situation, the bank notes. With a 2025 budget plan expected to be presented in the coming weeks, the absence of a new prime minister adds to the uncertainty. The NFP alliance, although it won 193 seats in the National Assembly, does not reach the required absolute majority (289 seats).

In addition, other parties indicated that they would vote in favor of a motion of no confidence if an NFP government emerged. Macron therefore needs to quickly find a compromise to avoid an institutional deadlock as the budget presentation is imminent.

The report points out that significant changes in fiscal policies are unlikely, especially because of the right-wing majority in the Senate, which is unlikely to tolerate budget slippages.

According to the EU’s Stability and Growth Pact, France, currently in the excessive deficit procedure, must implement a fiscal consolidation of at least 0.5% of GDP per year. The new government will have to initiate technical discussions with the European Commission and present its multi-year fiscal structure plan by September 20.

Political uncertainty in France could also affect financial markets. The UBS report notes that spreads between French and German Bund bonds remain high compared to historical levels.

With limited visibility on political and regulatory decisions, market volatility for French bonds could persist. UBS therefore sees better investment opportunities in countries that offer a more stable debt trajectory.