Macron on the brink as France faces 'doom loop' and budget deadlock

French President Emmanuel Macron (Image: Getty)

France is spiralling towards a potential economic "doom loop", with rising bond yields and political instability threatening to cripple the nation, after the resignation of Prime Minister François Bayrou, a financial expert has claimed. Samuel Fuller warned that France is “starting to look like Italy in the bad old days—drowning in debt and with a revolving door on the Prime Minister’s palace.”

With a polarised National Assembly and a looming Budget deadline, the Government is facing paralysis as public unrest grows. The immediate crisis stems from the inability to form a stable government. Mr Fuller, Director at Financial Markets Online, said of President Emmanuel Macron: “Whoever he chooses to succeed the ill-fated Mr Bayrou, they are likely to be paralysed by a Parliament polarised into hard left and far right".

France's Prime Minister Francois Bayrou resigned on Monday (Image: AFP via Getty Images)

The National Assembly, divided between the New Popular Front and Marine Le Pen’s National Rally, has left President Emmanuel Macron’s centrist coalition unable to secure a majority.

Mr Fuller said: “The chances of French MPs approving a Budget by next month’s deadline look vanishingly slim," warning that failure to pass a budget could halt government operations and deepen the economic gloom.

Financial markets are sounding alarms as French bond yields climb. Mr Fuller continued: “Yields on French bonds are creeping up as institutional investors fret that the country is inching towards a doom loop," pointing to a cycle where rising debt fuels higher borrowing costs, further straining public finances.

The Fitch ratings agency may downgrade France’s credit rating as early as this Friday, a move that could intensify market pressures.

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While French stocks are experiencing a temporary relief rally, Fuller cautioned that “significant volatility looms and this week will be as bumpy for international investors as it is for French themselves.”

Public anger is set to erupt, with up to 100,000 protesters, rallying under the slogan “Let’s block everything,” expected to march in Paris and other cities tomorrow.

Mr Fuller said: “French politics could be heading for a brick wall," as the protests threaten to disrupt transport, businesses, and public services.

Authorities have bolstered police presence to prevent clashes, but the scale of the demonstrations suggests significant disruption is likely.

Mr Macron’s options are dwindling. Bayrou’s resignation, the third prime ministerial exit in under a year, highlights the fragility of his leadership.

Mr Fuller explained: “The reason isn’t so much the fall of another Prime Minister, it’s more the lack of options President Macron has to fix the mess."

Appointing a new prime minister requires cross-party support, which appears unattainable in the current polarised climate. Macron may consider emergency measures to push through a budget, but such actions risk further inflaming public discontent.

France’s debt-to-GDP ratio, exceeding 110%, adds urgency to the crisis. A failure to pass a budget could lead to cuts in public services, further fuelling protests and deepening the economic doom loop.

The euro is under pressure, and investor confidence is waning as international markets brace for fallout. Mr Macron’s ability to navigate this political and economic storm will determine whether France can avoid a deeper crisis, with implications for both domestic stability and Europe’s economic landscape.