One crisis to another, France may face challenges from the far right.

• The appointment of Michel Barnier as prime minister by French President Emmanuel Macron signaled the conclusion of a period of political uncertainty in France following the inconclusive July snap election.
• Despite the challenges France has faced, including acute fiscal issues and the threat of the far-right National Rally opposition, led by Jordan Bardella and Marine Le Pen, the country's challenges are far from over.
• The far-right will have the power to influence the new government's formation and can decide to support or oppose Barnier's government at any time.

The appointment of Michel Barnier as prime minister by French President Emmanuel Macron signaled the conclusion of a period of political uncertainty in France following its inconclusive July snap election.

Despite the challenges France has faced, including acute fiscal issues and the threat of the far-right National Rally opposition, led by Jordan Bardella and Marine Le Pen, the country's challenges are far from over.

Barnier's initial responsibility is to expedite the creation of a 2025 budget draft, which will be presented to France's National Assembly for approval in October.

France must present a deficit reduction plan to the European Commission within weeks or face disciplinary proceedings, as its budget deficit continues to break EU rules.

In order to comply with EU regulations, countries must keep their budget deficits below 3% of GDP and their public debt below 60% of GDP. France's budget deficit in 2023 was 5.5% of GDP, and its public debt exceeded 110%, meaning it must implement significant spending cuts and tax increases to reduce its deficit.

Barnier, a conservative from the right-leaning Les Republicains party with limited support in France's fragmented parliament, faces a challenging task.

The New Popular Front, a left-wing coalition comprising four parties, has protested against Macron's appointment of Barnier as the new European Commission chief, despite their own candidate winning the largest vote share in July's election.

Barnier may secure the backing of 47 deputies from his own center-right party, 166 from Macron's centrist alliance, and up to 21 independents, totaling 228 deputies.

He may face strong opposition from the NPF, which has 193 seats, and may need the support of the National Rally, with 142 assembly seats, to succeed.

The political survival of Barnier is contingent on the personal-political calculations of Le Pen.

Eurasia Group's managing director, Mujtaba Rahman, stated in a Monday note that at any given moment, she could contribute her 142 assembly votes to the 193 held by the left, resulting in a significant number of votes beyond the 289 required to topple the Barnier government.

The far-right in France seems to be enjoying the prospect of being a decisive factor in shaping the government, with the potential to either support or oppose it.

Bardella, the 28-year-old president of National Rally, characterized Barnier as a prime minister "under surveillance" and the party, led by figurehead Marine Le Pen, is predicted to push Barnier's government to adopt policies that align with its own anti-immigration stance and promise to enhance the living standards of French citizens.

The vengeful left and the far-right both have a significant impact on the stability of the Barnier government in France, according to analysts.

Budget the first challenge

The immediate challenge for Barnier's government is to pass a budget that will put France's public finances back on track, which will not be an easy task, as warned by analysts and economists.

Rahman of Eurasia Group stated that Barnier will face a tough start in his new role as he deals with a severe financial crisis and a weak government in France.

The immediate crisis facing Barnier and the country is how far Le Pen is willing to address the painful choices needed to prevent France from plunging into a destructive fiscal crisis by the end of this year, according to him.

If Le Pen's far right joins with the left to support a censure motion, Barnier's term could be cut short at any moment. However, it is more likely that Le Pen will passively support Barnier's government if he advances her priorities on migration, the cost of living, and proportional representation. Le Pen's strategy will remain fluid and opportunistic and could change weekly.

The government's efforts to win over its opponents and National Rally's response to the draft budget and emergency spending cuts (estimated at approximately 16 billion euros or $17.6 billion) will be closely monitored.

The Eurasia Group believes that Le Pen and National Rally will strive to avoid causing a political and economic crisis in France by presenting themselves as the "responsible" opposition to win the support of voters, particularly in preparation for the 2027 presidential election.

The political risk consultancy predicted that Barnier will have a 55% chance of remaining in his role into 2025, but will be at the mercy of the self-interested calculations of Le Pen and the far right.

Despite being the chief Europe economist at Capital Economics, Andrew Kenningham believes that Barnier will face challenges in passing the 2025 budget.

It is unlikely that "Mr Brexit" will succeed in passing a budget that will restore the public finances to balance. In order to pass the 2025 budget, it will be necessary to gain the support of Marine le Pen's National Rally, which has previously advocated for significant tax cuts and the reversal of Macron's 2023 pension reforms.

Bruno le Maire, the outgoing Minister of Economy, announced earlier this week that the budget deficit is expected to be 5.6% this year, higher than the previously anticipated 5.1%, and both sales tax and corporate tax revenues are lower than expected.

According to Kenningham, it is likely that French government bond spreads will remain higher than they were before the election and could potentially increase even more.

Currently, the French 10-year government bond yield is 2.86%, down from a high of 3.3% in the summer due to political uncertainty. The spread between German and French 10-year yields has narrowed from 81 to 71 basis points.