Macron names centrist Bayrou as France's new prime minister

President Emmanuel Macron picked Francois Bayrou to be France’s new prime minister, calling on a longstanding centrist ally to navigate a fractured political landscape that toppled the previous administration.

Bayrou, who leads the centrist Democratic Movement party known as MoDem, steps into the breach after far-right leader Marine Le Pen allied with a left-wing coalition of lawmakers last week to oust Michel Barnier from office as he attempted to drive a stringent budget through parliament.

To avoid the same fate, Bayrou must quickly rewrite fiscal plans with concessions to buy at least implicit support from some of Macron’s political adversaries. Investors are watching closely after months of political upheaval and uncertainty sparked temporary selloffs of French assets, at one point driving up the country’s borrowing costs as high as Greece’s.

“Everyone appreciates the difficulty of the task and I think also that everyone thinks there is a path to be found that unites rather than divides people,” Bayrou told reporters after the announcement. “Reconciliation is necessary.”

The spread between French and German 10-year bond yields, a proxy for French risk, was two basis points tighter at 77 basis points, close to its average over the past six months. France’s CAC 40 Index was little changed.

Macron’s decision to dissolve the National Assembly in June plunged the country into an unusual situation where the French president has scant influence over lawmakers. Since the snap election, the lower house is split into three feuding blocs: the leftist New Popular Front, a shrunken center backing Macron and an expanded nationalist group led by Le Pen.

In a post on X following the announcement, Le Pen said Bayrou must work with her party and its proposals to put together a budget. “Any policy that just extends Macronism, which has twice been rejected at the polls, can only lead to impasse and failure,” she said.

Jordan Bardella, the president of the National Rally, said his party wouldn’t back a no-confidence vote by default against a prime minister from the center or the right, implicitly giving Bayrou some room to maneuver. Communist leader Fabien Roussel, whose party is part of the leftist bloc, indicated a similar stance.

“Naming a prime minister from his own camp sends a bad signal, it’s not what French people want,” Roussel told on BFM TV. “But I won’t say censure outright, we will judge based on evidence.”

Currently the high commissioner of government planning, Bayrou ran for president in three consecutive elections starting in 2002. In 2017, he declared that he would stand aside to instead ally himself with Macron as Le Pen rose in the polls.

The key to Bayrou’s success or failure as prime minister will be garnering support from both the center left and the center right to avoid a majority forming that would vote him out like Barnier. That will likely require prising apart the New Popular Front to pick off more moderate Socialists from their alliance with Jean-Luc Melenchon’s far-left France Unbowed.

If Bayrou can’t find a way to appease parts of the left — or get their agreement not to censure his government outright — he will still be vulnerable to Le Pen’s lawmakers voting him from power.

In an open letter to Bayrou after his appointment, the Socialist party demanded the new prime minister quickly meet with the heads of political groups in parliament and pledge to not invoke a constitutional provision to bypass votes on bills. Barnier’s use of the tool — which prime ministers have routinely relied on when they don’t have a majority — triggered the no-confidence vote that toppled him.

The socialists also said they would not accept the continuation of Macron’s policies and want guarantees that Bayrou’s government will not depend on the National Rally or push far-right policies.

Bayrou has some credit with the National Rally after coming to Le Pen’s aide when she risked not having enough sponsorship from elected officials to run in the 2022 presidential election. Barring her path would have been undemocratic, he said at the time.

But France’s new prime minster must tread carefully. Barnier’s short stint as premier also began with courteous relations with Le Pen, before she said he lacked respect for her party and its budget demands, and voted him out of office.

The first task for Bayrou will be to name a government that will be able to carry special legislation through parliament to allow the state to continue collecting taxes and carry out the minimal level of spending to avoid a shutdown in France on Jan. 1. Opposition groups have said they would back the emergency legislation, even as it does not allow for any new spending and could push up income taxes if it’s not quickly replaced by a full budget.

Bayrou will then have to pick up the pieces of a 2025 budget plan that was derailed by Barnier’s downfall. The initial bill aimed for an unusually sharp adjustment to bring France’s deficit to 5% of economic output from 6.1% this year with €60 billion ($63.1 billion) of tax hikes and spending cuts.

Societe Generale SA trading data shows hedge funds and foreign investors have stepped in over recent weeks and bought French government bonds — also known as OATs — or closed out short positions. It’s a sign that some funds are willing to look through the political gridlock, and that certain key spread levels can trigger buying.

Still, the SocGen strategists including Adam Kurpiel say a “slow-burning” move wider is the most likely outcome, arguing the new government is likely to be weak and encounter further political clashes. Fiscal consolidation “is no longer on the horizon,” they added in a note published Thursday.

Bayrou on Friday also cited Socialist President Francois Mitterand on the night of his election. “His first word when he received the results was: Finally, trouble is starting,” Bayrou said.

—With assistance from Alice Gledhill, James Regan and Thomas Hall.