French Prime Minister Francois Bayrou last week called for parliament to hold an earlier-than-expected vote of confidence in him. Next week’s ballot could lead to the collapse of his centrist government and prompt a period of further instability in the European Union’s second biggest economy.

The vote on Monday in the National Assembly, the lower house of parliament, will see Bayrou not only try to secure approval for himself and his government but also for his unpopular budget. But opposition parties have said they will vote against him and cut short his government’s time in office.

President Emmanuel Macron, who has promised to stay on until 2027, may soon face the complex task of appointing a prime minister for the third time in one year after his hasty dissolution of parliament in June 2024.

Financial markets were rattled after Bayrou’s announcement on August 26. The interest payments on 10-year bonds rose to 3.5 percent on Monday, higher than debt-riddled Greece’s 3.36 percent.

What are Bayrou’s budget proposals?

At first blush, France’s economy appears to be doing relatively well. The government’s debt pile is lower, relative to the size of its economy, than in Italy. And the cost of financing the annual interest on its debt is well below that of the United Kingdom’s.

But Paris is struggling to keep a lid on its spending. Last year, France’s budget deficit reached 5.8 percent (168.6 billion euros, or $196bn) of its gross domestic product (GDP). The official EU target is no more than 3 percent. Investors worry that France’s persistent deficits will cause ever higher debt ratios and undermine its credit score.

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For his part, Bayrou is trying to lower the government’s borrowing to 4.6 percent of GDP in 2026 and to 2.8 percent by 2029. In turn, that would lower the overall debt-to-GDP ratio to 117.2 percent in 2029, compared with 125.3 percent if no changes are made.

His plan includes 43.8 billion euros ($51bn) in savings for 2026, 80 percent of which would come from spending cuts, such as reductions in public sector hiring, suspending pension indexation to inflation and scrapping two public holidays.

Greater taxes on high earners are among other proposals that have been considered.

The prime minister’s proposals come on top of Macron’s unpopular 2023 move to raise France’s retirement age by two years to 64. At the time, the president argued that excessive pension payments were a drag on the country’s finances.

Before the confidence vote, the French leadership has again tried to shape the debate around the country’s future.

“The issue, the question, is not the fate of the prime minister or… even the fate of the government. The question is the fate of France,” Bayrou said.

On August 26, Finance Minister Eric Lombard warned that unless France gets its debt under control, interventions from the International Monetary Fund, the global lender of last resort – typically for emerging market countries – “is a risk that is in front of us”.

How have political parties responded to Bayrou’s gamble?

Because Bayrou’s centrist and allied conservative coalition does not hold an outright majority in France’s parliament, the prime minister will have to rely on the support – or at least abstention – of adversaries on the left and the right to pass his budget.

But opposition parties, which hold more than 320 seats in the 577-seat National Assembly, have already said they would vote against Bayrou. If they stick to that, it would be impossible for the current government to survive.

Hard-left lawmakers from Unbowed said they want to “make the government fall”, and the Socialists have promised to reject an “unfair budget”. The national secretary of the Greens, Marine Tondelier, described Bayrou’s confidence vote as “a resignation de facto”.

Socialist Party leader Olivier Faure said it would vote against the government. Bayrou had “chosen to go”, Faure said.

Elsewhere, Jordan Bardella, head of the National Rally, said his far-right party would “never vote in favour of a government whose decisions are making the French suffer”. Bayrou in effect has announced “the end of his government”, Bardella said.

How have financial markets responded?

Political instability has increased the cost of government debt (otherwise known as the yield) and lowered the value of key French stocks with shares in the banks BNP Paribas, Credit Agricole and Societe Generale all down 8 to 10 percent last week.

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For Davide Oneglia, a European analyst at the political research firm TS Lombard, continued political wrangling has amplified the difference between French and German 10-year borrowing costs.

Since the start of this year, France’s borrowing premium over Germany – a key measure of macroeconomic risk – has widened by almost 1 percentage point. France’s 10-year yields are now among the highest in the EU, recently surpassing Greece’s and Portugal’s.

“The political situation is causing wider spreads [between France’s borrowing costs and its European peers]. We’re not at a full-blown debt crisis yet, but the fiscal situation is becoming more urgent,” Oneglia told Al Jazeera.

In December, the Moody’s rating agency lowered France’s credit score from “Aa3” from “Aa2” amid pressure on Paris’s strained finances. Moody’s move put it in line with those from rival agencies S&P and Fitch, which have also downgraded their ratings for France since 2023.

What could happen next?

Most commentators said Bayrou will likely lose next week’s confidence vote, forcing Macron to replace him with yet another prime minister. That would return the president to an impasse over the budget, which he’s failed to tackle since snap elections last year.

It also wouldn’t change the arithmetic in parliament. And because Macron is unlikely to appoint a premier who advocates a looser fiscal policy, which could win the support of parliament, political gridlock looks set to follow.

Some politicians, including Marine Le Pen of the National Rally, have urged Macron to call new legislative elections in the hope of reshuffling the political deck before France’s presidential election in 2027. But the French president will be wary of that option.

The latest opinion polls show no material change in voting intentions since last year’s vote, which resulted in the current parliament. Meanwhile, the prospects of a National Rally victory in the next presidential election are stronger than ever: The party has been leading in polls for that vote consistently over the past two years. In May, two polls had the National Rally’s likely candidate, Jordan Bardella, at 30 percent and 31 percent respectively, with the next candidate at 21 percent.

In the event of a National Rally presidential win, Oneglia believes the Italian elections in 2022 offer a useful blueprint. “Meloni’s right-wing populist party quickly became fiscally centrist when they came into power,” he said, referring to Italian Prime Minister Giorgia Meloni.

“It wouldn’t surprise me to see a similar outcome in France in 2027 [if the National Rally were to win]. Until then, I expect the political situation to assume a ‘kicking into the long grass’ mode,” he said.