Just three months after he was appointed, French prime minister Michel Barnier has been removed by MPs — leaving a big question mark over the country’s budget for 2025.
Earlier this week, Barnier pushed through the first part of the budget without a vote in the lower house of Parliament, triggering a vote of no confidence. Today MPs voted to oust him, meaning that Barnier and his government are set to resign.
It’s an unprecedented political situation — with less than one month left to pass the country’s budget for next year. The budget will determine whether startups can count on a number of tax breaks, as well as the costs of hiring employees, leaving many founders in limbo when it comes to their own budgets for 2025.
“Normally, by mid-December you should know how you can organise your budget and how much runway you have left,” a source close to the government tells Sifted. “The instability of our institutions means that we don’t know what sauce entrepreneurs are going to be eaten with next year.”
Some in the tech sector worry that the ongoing instability in France — which began when when president Emmanuel Macron called for a surprise snap election in June that resulted in a divided and ungovernable Parliament — will impact the country’s ability to attract talent and capital after years building up its image as a ‘startup nation’.
“For a few years we have been working on France’s attractiveness, particularly for foreign capital,” Marianne Tordeux-Bitker, director of public affairs at startup and VC lobby France Digitale, tells Sifted. “And right now, we are not showing our ability to be stable.”
“What’s at stake is to maintain France’s attractiveness for everyone — capital and talent.”
What’s happening with the budget?
In October, Barnier put forward a proposal for the 2025 budget that included slashing a number of mechanisms that benefit early-stage startups.
Negotiations have been ongoing since then, particularly concerning an exemption for R&D-intensive startups from paying employer contributions on some of their employees’ salaries, which the government was planning to restrict.
But with the government now toppled, there is a lot of uncertainty around what the budget will look like.
“For the past three months, [startups] have been blown hot and cold,” says Tordeux-Bitker. “They need to know what to expect.”
Macron is expected to appoint a new prime minister, who will form a new government responsible for passing the budget for 2025. It is unclear how long this will take: after the government collapsed in July, the French president took two months to appoint Barnier as the new prime minister.
The budget, however, has to be passed by the end of December. There are several possible scenarios if no new government is appointed by then, including adopting the same budget as 2024 thanks to a special law. In this case, the future government appointed by Macron could still pass an amended budget at a later stage.
The president could also immediately appoint a new government, which would need to get the budget approved by a highly divided Parliament in just a few weeks.
“We need to appoint a prime minister soon so that a budget can be adopted,” says Tordeux-Bitker. “We need to have, very quickly, a government machine that is operational and deploying [capital].”
The big picture
Some founders and VCs worry that the political instability, as well as its consequences on the economy, will tarnish France’s image as a business-friendly country.
“It creates some reluctance for [international] VCs to invest in France versus the American scaleup ecosystem that might boom under a Trump mandate,” Thomas Clozel, founder of French AI scaleup Owkin, tells Sifted.
“What’s certain is that it isn’t good for France’s attractiveness,” says Hugo Weber, VP of corporate affairs at ecommerce unicorn Mirakl. “It’s not going to help attract new funds and new talents in France.”
Alice Albizzati, founding partner of French growth VC Revaia, says the tech sector has built up enough resilience to sustain this type of crisis.
“You have to be aware of what’s at stake, but this also highlights that our industry is here to last,” Albizzati tells Sifted. “We’re the second market for funding in Europe, we have cutting-edge technologies — particularly around AI — and we have talent.”
“Are there worries when it comes to political instability? Yes. […] But I’m not noticing a strong disengagement linked to the current context.”
Pierre-Eric Leibovici, founder and partner at French VC daphni, tells Sifted: “What’s certain is that uncertainty is good for no one, but the fundamentals of our industry remain good. Entrepreneurs are motivated. They have to remain motivated in a more complex context.”
“It’s too early to draw conclusions […]. It’s up to entrepreneurs to show the way and demonstrate that the state cannot do everything and is not the answer to every problem.”
Read the orginal article: https://sifted.eu/articles/france-government-collapse-analysis/
