The French government, led by Prime Minister Michel Barnier, is on the brink of collapse due to a budget dispute with parliamentary factions, particularly Marine Le Pen’s National Rally (RN) party.

RN leader Le Pen stated on Sunday that Prime Minister Barnier must make further concessions on the budget to avoid a no-confidence vote that could bring down his government. She gave Barnier a deadline of Monday, December 2, to meet the RN’s budget demands, warning that failure to do so could prompt her party to support a motion of censure.

In an interview with La Tribune, Le Pen said, “A vote against the government is not inevitable. All Barnier has to do is agree to negotiate.” However, she added that despite two weeks of negotiations, progress had been unsatisfactory.

Barnier had already abandoned a planned increase in electricity taxes last week, but the RN demands further changes, including increased pensions in line with inflation. The RN also seeks the cancellation of proposed cuts to drug reimbursements and is dissatisfied with the government’s fuel tax hikes.

Among other demands, the RN is pushing for a reduction in France’s contribution to the European Union budget.

The crisis could escalate if Barnier is forced to use his constitutional powers to push through the social security financing bill, which would likely trigger a motion of censure from the left-wing opposition.

Barnier’s survival depends on the RN’s abstention during the vote in the divided National Assembly. If the RN does not abstain, Barnier’s government and the budget bill could fall, potentially plunging France into a political crisis.

Budget Minister Laurent Saint-Martin emphasized on Sunday that the government respected the compromise reached with lawmakers on the social security bill. However, RN leader Jordan Bardella has made it clear that no further changes would be accepted.

Bardella accused the government of stubbornness and factionalism, which he believes are putting an end to negotiations and risking a no-confidence vote. He warned that the RN would launch a motion of censure if Barnier made no concessions by 14:00 today.

As the standoff continued, Saint-Martin and Finance Minister Antoine Armand cautioned that a no-confidence vote would have severe consequences for French taxpayers and pensioners. Armand told Le Journal du Dimanche that such a vote would force the government to pass an emergency law to ensure a budget could be drawn up at the start of the new year.

However, this law would only extend this year’s spending limits and tax provisions, meaning pensions would be cut and tax thresholds would increase for 17 million people, as they cannot be adjusted for inflation.

The growing uncertainty surrounding France’s budget and the future of its government has contributed to rising pressure on French debt and equities, with the risk premium on government bonds reaching its highest level in over 12 years last week.

The European Central Bank (ECB) is poised to shift away from a key inflation-control strategy, signaling a move from its reliance on analyzing current economic data to inform interest rate adjustments.

Philip Lane, the ECB’s chief economist, revealed in an interview on the Financial Times’ Economic Programme with Soumaya Keynes that future monetary policy decisions should eventually focus on anticipating future risks rather than relying on backward-looking metrics. Lane stated, “When the central bank is confident that inflation will reach its medium-term target of 2 percent, monetary policy should be driven by the risks ahead.”

Previously, the ECB and other central banks prioritized two-year inflation forecasts when determining interest rates. However, their inability to predict the prolonged price increases in energy markets—driven by supply chain disruptions and the war in Ukraine—undermined their credibility.

Confronted with decades-high inflation, central banks, including the ECB, began placing greater emphasis on short-term data such as monthly inflation rates, survey data, and quarterly GDP figures rather than long-term projections.

Inflation in the eurozone has significantly declined, dropping from a peak of 10.6 percent in October 2022 to 2.3 percent in November 2023. Despite this progress, short-term data continues to overshadow the central bank’s medium-term inflation forecasts.

Lane emphasized, “While inflation has moved closer to the ECB’s 2 percent target, there is still some way to go.” He noted that services inflation is expected to decline further, aligning with the broader disinflation process.

Lane highlighted the importance of adopting a forward-looking monetary policy once inflation stabilizes, stating: “Once the disinflation process is complete, monetary policy should essentially be forward-looking, scanning the horizon for new shocks that could lead to either more or less inflationary pressures.”

Tens of thousands of people have taken to the streets in Georgia for a fourth consecutive day, protesting the government’s decision to suspend European Union (EU) membership talks. Despite the unrest, Prime Minister Irakli Kobakhidze has firmly rejected calls for early elections.

The political crisis in Georgia has deepened following the October 26 parliamentary elections, which the pro-EU opposition has claimed were rigged. Opposition parties have boycotted the new parliament, amplifying backlash against the ruling Georgian Dream party.

President Salome Zurabishvili has requested the Constitutional Court to annul the election results, labeling the government “illegitimate.” The Georgian Dream party secured 53.93% of the vote in these elections. However, both the EU and United States have refused to recognize the results, citing numerous violations, including administrative abuses, vote-buying, and voter suppression.

During the protests, the Georgian Interior Ministry reported that approximately 150 people were arrested, though the Georgian Young Lawyers’ Association claimed the figure was closer to 200. Law enforcement deployed rubber bullets, tear gas, and water cannons in an attempt to disperse demonstrators.

Protesters gathered outside the parliament building on Sunday evening, waving EU and Georgian flags. While some clashed with police, launching fireworks and stones, others used metal gates to make noise at the building’s entrance.

Levan Khabeishvili, leader of the opposition United National Movement, reported being attacked by around 15 masked policemen but managed to escape with the help of demonstrators.

Rejection of early election calls

Prime Minister Kobakhidze dismissed opposition demands for early elections. Instead, the ruling party nominated former footballer Mikheil Kavelashvili for the largely symbolic post of president.

President Zurabishvili has vowed not to step down until the disputed parliamentary elections are rerun, describing herself as the “only legitimate institution in the country.” She emphasized her role in upholding legitimacy:

“There is no legitimate parliament, so an illegitimate parliament cannot elect a new president. My mandate is valid until there is a legitimate parliament to elect my successor. I stand with you, and I will remain with you.”

The crackdown has drawn criticism from the international community. Lithuanian Foreign Minister Gabrielius Landsbergis announced that Estonia, Latvia, and Lithuania would impose sanctions on those responsible for suppressing peaceful protests.

Meanwhile, US State Department spokesperson Matthew Miller condemned the “excessive use of force” by Georgian authorities.