French Prime Minister Attal survives no-confidence vote, averting another government collapse and giving the market a temporary respite.

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On Thursday, French Prime Minister Sébastien Lecornu survived two votes of no confidence in the National Assembly, providing a brief respite from the ongoing political crisis. This victory temporarily avoided a potentially early election and allows the government to continue addressing the large budget deficit issue.

Before the vote, Lecornu announced the suspension of a highly controversial pension law in exchange for key support from Socialist Party lawmakers. The first vote of no confidence, introduced by the far-left "France Unbowed" party, received 271 votes in favor, falling short of the 289 votes needed to force the Prime Minister’s resignation. The second motion, submitted by the far-right National Rally, got only 144 votes.

Investors welcomed the result. France’s CAC 40 index rose 0.8% on Thursday, outperforming its European peers. The yield spread between French and German 10-year government bonds, a key risk gauge, remained steady at 78 basis points, lower than last week’s level of over 89 basis points. The avoidance of yet another government collapse helped ease borrowing costs for France.

However, the political crisis is far from over. The suspension of the pension law is a political blow to President Macron, as this reform was once a hallmark of his pro-business economic agenda. Socialist lawmakers have warned that their decision not to vote Lecornu out does not mean giving the Prime Minister a blank check, and the outlook for budget negotiations remains uncertain.

Key Support from Socialist Party Exchanged for Pension Concession

Socialist Party lawmakers, who hold a crucial position in the National Assembly, agreed to support the government in this vote on the condition that Lecornu pledged to suspend the pension law passed in 2023. The law originally aimed to gradually raise the minimum retirement age from 62 to 64.

This concession is costly for President Macron, as pension reform has always been a central emblem of his pro-business economic policy. According to government estimates, suspending the law will cause a fiscal loss of 400 million euros ($465 million) next year, rising to 1.8 billion euros by 2027.

Budget Negotiations Face Major Obstacles

Despite surviving the votes of no confidence, the road ahead for Lecornu remains difficult. He has stated he will not use Article 49.3 of the Constitution to bypass voting procedures in the National Assembly, meaning lawmakers will have more control over legislation. This marks an unpredictable shift in power dynamics within the National Assembly; previously, the minority government had relied on this tool to block more radical proposals from lawmakers.

The Socialist Party has already begun opposing spending cuts, including freezes on benefits and pension payments. The party’s leader in the National Assembly, Boris Vallaud, said on Franceinfo radio on Wednesday: "We will see what's in the budget; we have not promised to vote in favor of it."

Socialist lawmaker Laurent Baumel said in the National Assembly on Thursday that the party’s decision not to support the current no-confidence motion does not mean the same will be true in the future.

Markets Catch a Brief Break

National Assembly President Yaël Braun-Pivet said that passing the vote of no confidence means parliament can now start budget negotiations. She told French media on Thursday: "We are moving forward step by step. Our working logic now is compromise, discussion, and dialogue."

Lecornu’s survival has provided some reprieve from the political crisis that nearly triggered an early election this week, and also temporarily allows France to maintain its large budget deficit plan. But with parliament empowered and divisions clear, the future of budget negotiations and pension reform remains uncertain.

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