French Political Crisis Spurs Fiscal Instability, Coalition Rift

France is experiencing significant political instability under President Emmanuel Macron's administration, with the new government already facing internal crises and a looming no-confidence vote. The conservative Republicans, led by Bruno Retailleau, have expressed dissatisfaction with their representation and key appointments, notably the return of Bruno Le Maire as Minister of Defense, leading to tensions within the coalition. This political deadlock is expected to exacerbate France's fiscal challenges, with the budget deficit predicted to remain above 5% of GDP and government debt rising, which could push up French bond yields and increase the risk premium on French debt. Despite these issues, analysts from Capital Economics anticipate limited contagion to other Eurozone countries due to the absence of regional imbalances and the European Central Bank's likely intervention to maintain stability. The ongoing instability risks undermining President Macron's tenure, with opposition parties preparing to push a no-confidence motion against Prime Minister Sébastien Lecornu's government. The political and economic uncertainty raises concerns about the effectiveness of fiscal policies and the potential for prolonged turmoil in France's governance and financial markets.