France Faces Budget Crisis for Second Year, Risks Financial Stall

For the second consecutive year, France is facing a budget crisis as it fails to approve the budget law by the end of the year. The country will have to rely on a "special law" to move forward and avoid a financial stall.

The mixed parliamentary commission, composed of seven deputies and seven senators, failed to reach a compromise on the budget law for 2026 in Paris. According to France Info, the meeting lasted less than an hour, resulting in a failed budget. This setback hits a country struggling with a political and economic crisis that concerns the entire Europe. Simultaneously, the French Institute of Statistics (Insee) released data showing public debt rising to 117.4% of GDP in the third quarter of 2025.

Political Menu: A Repeat of Last Year

"For Christmas, the political menu will be the same as December 2024, rather sparse: no budget, a miserable 'special law' as a substitute," wrote Le Monde.

Government's Response to the Impasse

Following the failure of the joint commission to draft a compromise budget for 2026, the government acknowledged the impossibility of adopting and enacting a financial law before the end of the year. Prime Minister Sébastien Lecornu announced that he would begin consultations with political party leaders on Monday, aiming to uphold his promise not to resort to Article 49.3, which would bypass Parliament. Meanwhile, the Matignon Palace is preparing to deposit a special law to ensure the state's operations and avoid deadlock. However, this is a temporary solution; it would be impossible to reach the end of 2027 without a budget law, warned Matignon Palace.

"The government acknowledges the failure in the joint committee," wrote Prime Minister Lecornu on X, thanking the parliamentarians who "worked and sought, in good faith, a reasonable compromise" on the 2026 financial maneuver. He deplored "the lack of will of some parliamentarians to reach an agreement, as was to be feared, unfortunately, for some days."

"In accordance with the terms provided by the constitution and organic laws," the Prime Minister continued, "Parliament will therefore not be able to approve a budget for France before the end of the year. I regret this, and our fellow citizens do not deserve to suffer the consequences. In this context," Lecornu concluded, "I will bring together, starting on Monday, the main political leaders to consult them on the way forward to protect the French and find the conditions for a solution."

The 'Special Law': A Temporary Fix

The special law is similar to a provisional budget. It will allow the government to extend the 2025 budget to the beginning of 2026, permitting tax collection. The process for its approval is expected to be rapid. The Council of State, consulted on the project, must issue a legal opinion very quickly. "The text could be examined during the weekend by the Council of Ministers, then on Monday by the National Assembly, on Tuesday by the Senate, before being promulgated immediately after," Le Monde added.

Economic Implications of the Special Law

According to the French Economic Observatory, if applied for the entire year 2026, the special law will result in a loss of 6.5 billion euros in state revenue while reducing spending by 3 billion euros. Furthermore, the deficit will be "significantly higher than desirable," stated the Governor of the Bank of France, François Villeroy de Galhau, on France Inter radio.

The economic implications are summarized in the table below:

Rising Concerns Over Deficit and Debt

According to Insee, French public debt stood at 3,482.2 billion euros at the end of the third quarter, an increase of 65.9 billion compared to the previous quarter, equivalent to 117.4% of GDP. This is the third-highest in the European Union, after Greece and Italy.

Debt Levels Compared to Other EU Nations

The debt situation is further detailed here:

Bank of France Raises Growth Forecasts

Good news comes from the Bank of France, which raised its growth forecasts for the French GDP to +0.9% for 2025 and +1% for 2026. The previous forecast was +0.7% this year and +0.9% for next year. Yesterday, Insee also raised its forecast for 2025 to +0.9%. Regarding prices, the Bank of France estimates inflation at 0.9% this year after 2.3% in 2024.

Revised Economic Growth Projections

Inflation Rate Estimates

Lecornu's Commitment

"...have worked and sought, in good faith, a reasonable compromise" kata Perdana Menteri Lecornu, Hari Senin (28 Desember).

"...Parliament will therefore not be able to approve a budget for France before the end of the year. I regret this, and our fellow citizens do not deserve to suffer the consequences. In this context," kata Perdana Menteri Lecornu, Hari Senin (28 Desember).

Public Debt Data

Economic Forecasts Summary