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The legal and political situation has eased, but the budget bomb has been planted! Euro's brief carnival may be followed by fatal crisis
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Hello everyone, today XM Forex will bring you "[XM Forex Platform]: The legal situation has eased but the budget bomb has been planted! After the short carnival of the euro, there may be a fatal crisis." Hope this helps you! Original content is as follows:
During the Asian market on Wednesday (October 15), the euro held on to the previous day's gains against the U.S. dollar and rose moderately, as the decline in political instability in France provided support for the euro, and Federal Reserve Chairman Powell's remarks that he was inclined to continue cutting interest rates put pressure on the U.S. dollar.
However, although the latest developments in the French political situation have reduced political instability, they have intensified budget difficulties, and the euro may still face greater pressure in the future.
An extremely fragile budget draft
In the past few days, French politics has been in flux again. Prime Minister Sebastian Le Corni, who resigned last week, finally returned to politics for a second term to lead a new government.
On Tuesday, the new government submitted a draft budget for 2026. The Prime Minister issued a policy agenda to Parliament that day. The core points are as follows:
In order to stabilize his ruling position and avoid the Socialist Party's impeachment motion, Le Corni has agreed to fully suspend pension reform and postpone this issue until after the 2027 presidential election. This means the retirement age will remain unchanged at 62 years and nine months. The move will cost the pension system €400 million in 2026 and €1.8 billion in 2027. Taking into account the impact of the decline in labor market participation, the total cost to public finances will rise to 3 billion euros, benefiting 3.5 million French citizens.
Le Kearney emphasized that this suspension measure must be funded through additional savings and must not be at the expense of expanding the deficit. However, the specific implementation plan is still unclear.
The government’s goal is to reduce the fiscal deficit from 5.4% of GDP in 2025 to 4.7% in 2026, and to control it below 3% by 2029. But at this stage, theThe probability of the bid is slim - the High Council for Public Finance said on Tuesday that the plan was fragile and even "highly hypothetical".尽管推行财政整顿,国债仍将持续攀升,预计2026年达GDP的117.9%,增幅达2个百分点。
The budget foresees a controlled evolution of public expenditure, with the goal of reducing the public expenditure rate to 56.4% of GDP in 2026 from 56.8% in 2025. The total expenditure savings are about 17 billion euros. The core ideas include stopping many benefits (including pensions) from being linked to the inflation index and reducing government operating costs.
The mandatory collection rate will increase from 43.6% of GDP in 2025 to 43.9%. To achieve this goal, the budget plans to raise 14 billion euros in new revenue, mainly targeting the wealthiest households, while extending the period for collecting special corporate surtaxes and freezing the threshold for personal tax.
Where to go next?
Members now have 70 days to debate, amend and vote on the budget. There are many difficulties in reaching a parliamentary agreement at this stage - because it needs to be unanimously approved by both houses, the right-wing Republicans and the left-wing Socialists must jointly support the budget.去年议会辩论曾导致预算文本面目全非,最终无人愿意投票支持。 If Parliament fails to pass a budget, it will face the following options:
Trigger Article 49.3 of the Constitution to force passage
This clause allows the government to force the passage of laws, and all previous budgets have relied on this method. Although Le Corni promised to abandon the use of this method, historical experience shows that the promise is difficult to keep. If this clause is used, it is likely to trigger an impeachment motion.
Enforcement by administrative decree
If Parliament fails to make a resolution 70 days after the budget text is submitted, the constitution allows the government to pass decrees to implement budget provisions. This third option is feasible, but politically destructive.
Temporary continuation of the old budget
In the absence of a budget, the Parliament can refer to last year's practice and pass a special bill at the end of the year to extend the 2025 budget to 2026, pending a subsequent agreement.
The latest developments show that the Socialist Party has stated that it will not submit an impeachment motion, reducing the immediate risk of the government's immediate collapse. The impeachment motion proposed by the far-right National Rally (RN) and the far-left France Unyielding (LFI) will be debated in the National Assembly on Thursday. Even if these parties form an alliance with the Greens, barring an unexpected Republican defection, the motion has little chance of passing.
If the impeachment motion is unexpectedly passed (the possibility is currently low), President Macron has stated that he will dissolve parliament and hold a new round of elections, and will no longer try to appoint a new prime minister.
Political instability has decreased, but the deterioration of the financial situation has intensified
Overall, the recent political instability in France has been alleviated but has not been eradicated. The current government is still in an absolute minority, any legislative proposals will be difficult to make, and its governing position will continue to face cyclical tests.
The political situation stabilizesIt does not mean that the budget can be passed as it is - either it will be forced to be revised during the parliamentary debate, or it will be forced through at the cost of reigniting the political crisis. France's budget problem is essentially a structural problem, and it is far from being truly solved.
With pension reform on hold, the fiscal austerity required each year to achieve the 2029 target of reducing the deficit to 3% will further intensify, while political consensus to achieve this goal remains elusive. For Europe, the French budget crisis is far from over.
The announcement of the budget draft and temporary stabilization of the political situation may provide short-term support for the euro. However, the 70-day parliamentary debate period will be an ongoing source of political uncertainty, and any adverse developments could trigger a short-term sell-off in the euro.
All in all, this fragile budget draft has put pressure on the euro from three dimensions: fiscal fundamentals, political risks and EU relations. It is more like a "diagnosis" revealing the underlying problems rather than a "solution", indicating that the euro will face continued headwinds from France in the www.xmmen.coming period.
The above content is all about "[XM Foreign Exchange Platform]: The legal and political situation is eased but the budget bomb is buried! A fatal crisis may be hidden after the short carnival of the euro". It is carefully www.xmmen.compiled and edited by the editor of XM Foreign Exchange. I hope it will be helpful to your trading! Thanks for the support!
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