No-confidence vote topples French government, plunges country into chaos

The support of Marine Le Pen’s far-right lawmakers was key to the motion, which made this the shortest-serving administration in the modern French republic.

By Ellen Francis

 and 

Anthony Faiola 04-12-2024 The Washington Post

A no-confidence vote in the French parliament on Wednesday triggered the collapse of the government, plunging the country into political chaos and stoking anxiety about the euro zone’s second biggest economy.

Prime Minister Michel Barnier’s administration becomes the shortest-serving government in the modern French republic and the first in six decades to be toppled by a no-confidence vote. Although the motion was put forward by a leftwing alliance, the swing votes of Marine Le Pen and her far-right lawmakers, wielding unprecedented influence, were key to its passage. The measured was adopted with 331 votes, more than the required majority.

The trouble is, there’s no obvious cast of characters who could form a stable government. New legislative elections that might alter the political dynamics can’t happen before summer. And without a government in place, France couldn’t address the gaping hole in its public finances or resolve uncertainty that has the potential to spook markets and weigh on other euro-zone economies.

“We have reached a moment of truth and responsibility," Barnier said during Wednesday’s parliamentary debate ahead of the vote. “This reality will not disappear by the magic of censure motions."

🌎  The crisis came to a head this week over the government’s budget-cutting plans. But it goes back to French President Emmanuel Macron’s gamble on early legislative elections, which kept the far-right National Rally party out of government but gave Le Pen, its leader, a kingmaker role in a bitterly fragmented political landscape.

The turmoil in France — just weeks after the collapse of the German government — threatens to leave two of Europe’s most powerful nations rudderless, as European officials warn they must prepare for a blow if President-elect Donald Trump unleashes a trade war or slashes aid for Ukraine.

How France got here

French President Emmanuel Macron

The crisis came to a head this week over the government’s budget-cutting plans. But it goes back to French President Emmanuel Macron’s gamble on early legislative elections, which kept the far-right National Rally party out of government but gave Le Pen, its leader, a kingmaker role in a bitterly fragmented political landscape.

In France, the president’s pick of prime minister must win lawmakers’ approval. From the outset, Le Pen said her party would oppose any candidate from the left-wing alliance that had garnered the most seats in the July election, though short of a governing majority.

Barnier — a traditional conservative and the European Union’s former Brexit negotiator — was selected as a veteran politician who could navigate the minefield and secure Le Pen’s tacit support. But his government has been under a near-constant threat of collapse since taking office in September, with its fate in the hands of Le Pen.

She managed to secure significant concessions in budget talks. Barnier, though, was intent on hefty spending cuts to regain control of France’s spiraling deficit and debt burden. On Monday, after he bypassed the lower house of Parliament to force through a budget bill, both Le Pen’s party and the left-wing alliance called for a no-confidence vote.

During Wednesday’s debate, Socialist lawmaker Boris Vallaud accused Barnier of having “locked himself into a humiliating tête-à-tête” with the far right.

Le Pen’s calculus

Marine Le Pen

The budget fight has allowed Le Pen to flex her political muscles and publicly stand up for populism. In a fiery address during Wednesday’s debate, she said her decision to back a no-confidence vote was about stopping a budget that "takes the French hostage, and particularly the most vulnerable, low-income pensioners, sick people, poor workers, the French considered too rich to be helped but not poor enough to escape the tax bludgeoning.”

But the timing of her move has raised questions.

The leader of the Euroskeptic, anti-immigrant National Rally is known to have the French presidency in her sights. The country’s next presidential vote isn’t due until 2027, and Macron said as recently as Tuesday that he would serve out his elected second term “with all my energy until the last second to be useful to the country.” But some analysts say Le Pen may hope a crisis would corner him into resigning early.

Le Pen is also facing the complication of a trial accusing her, and members of her party, of embezzling millions of euros of European Parliament funds. Prosecutors have sought a five-year ban on public office that would prevent her from running for president in 2027. A verdict is expected in late March.

Under Le Pen’s leadership, National Rally has sought to distance itself from its origins on the neo fascist fringes and show voters that it is a broadly appealing party that could govern responsibly. But many French politicians are convinced that the trial “has derailed her strategy to make herself and her party appear constructive and capable of making the compromises needed in government,” said Mujtaba Rahman, managing director for Europe at the Eurasia Group consultancy.

🌎  The turmoil in France — just weeks after the collapse of the German government — threatens to leave two of Europe’s most powerful nations rudderless, as European officials warn they must prepare for a blow if President-elect Donald Trump unleashes a trade war or slashes aid for Ukraine.

What happens next

The government collapse could push the country deeper into uncharted territory.

Macron could ask Barnier’s government to stay on in a caretaker role, while the president tries to find another prime minister who wouldn’t immediately be censured by a majority of lawmakers. That’s no easy task.

Meanwhile, the country faces an end-of-the-month deadline to sort out its budget and avert a government shutdown.

Under French law, a government can seek legislative approval to roll a previous year’s budget into a new year, temporarily keeping public workers paid and operations running until a new budget can be adopted. But there are debatable legal questions about what powers can be used by an overthrown government in an interim role. A move by the caretaker government to push a budget through, or a move by Macron to invoke the president’s exceptional powers to impose a budget, would trigger a political and constitutional mess.

What could the economic fallout be?

🌎   France’s debt-to-GDP ratio is over 110 percent of GDP — the third-highest ratio in Europe.

The political crisis in France is stirring fears of a financial one, as investors fret over the fate of a series of curative measures meant to address the country’s woefully high budget deficit — which, at above 6 percent of gross domestic product, is far above the E.U.’s 3 percent guideline.

France saw a buildup in its debt and deficit after spending generously to protect incomes during the covid era and shield people from the rise in energy prices that followed Russia’s invasion of Ukraine. Now, a budgetary morass would take a growing toll on France at a time when Europe is facing other economic headwinds, including a weak German economy next door.

In a symbolic moment on Monday, French bond yields — the interest paid on debt — even surpassed those of the euro zone’s former problem child: Greece, the same country that sparked a region-wide debt crisis in the aftermath of the 2008 global financial crisis.

French government spokeswoman Maud Bregeon, in an interview with Le Parisien, described the risk of “a Greek-style scenario.” Such talk, for now, appears to have been largely a negotiating tactic. France’s debt-to-GDP ratio is over 110 percent of GDP — the third-highest ratio in Europe. But the French situation differs starkly from Greece’s at the time of its debt crisis, which saw a debt-to-GDP ratio above 200 percent at its peak.

Adam Posen, president of the Peterson Institute for International Economics, called a financially catastrophic French default a “remote” prospect and said there is low risk of France’s woes spreading to other European countries anytime soon. But should the country’s political crisis and budget impasse continue, it could drive up the cost of the country’s debt and have a dampening effect beyond France’s borders, while ratcheting up a tense debate in Brussels over fiscal responsibility.

In the meantime, France is constrained on long term solutions. Its already-high tax rate gives it limited room to raise revenues and address its budget woes, while deep cuts in public benefits could trigger social unrest and boost populists on the far-right and far-left.

“There are couple of switch points in which things could blow up in the next two to six months, but probably they get through it,” Posen said. “The issue is more in the two- to three-year horizon.”⍐

___________________

By Ellen Francis

Ellen Francis is The Washington Post’s Brussels bureau chief, covering the European Union and NATO.

By Anthony Faiola

Anthony Faiola is Rome Bureau Chief for The Washington Post. Since joining the paper in 1994, he has served as bureau chief in Miami, Berlin, London, Tokyo, Buenos Aires and New York and additionally worked as roving correspondent at large.

கொரிய வசந்தம்! _ U.S. watches warily as key Asian ally descends into political chaos

 U.S. watches warily as key Asian ally descends into political chaos

The South Korean president’s declaration of martial law caught Washington by surprise.

Soldiers try to enter the main hall of the National Assembly after South Korean President
Yoon Suk Yeol declared martial law on Tuesday. (Yonhap/AFP/Getty Images)

By Karen DeYoung

 and 

Ellen Nakashima 04-12-2024 Washington Post

The Biden administration breathed a sigh of relief Tuesday as South Korean President Yoon Suk Yeol, in the face of overwhelming domestic opposition, backed down within hours from an emergency declaration of martial law.

But the fast-moving developments in a crucial part of the world left a deep sense of unease over the political future of one of the United States’ closest allies and concern for the tripartite U.S.-South Korea-Japan security pact, a deterrent against both China and Russia, that is one of President Joe Biden’s signature foreign policy achievements.

While Yoon is “one of the pillars of our regional engagement strategy,” said a U.S. official, speaking on the condition of anonymity because of the issue’s sensitivity, his political future is in doubt.

Following a narrow victory in elections last spring that saw the opposition Democratic Party — considered more accommodating toward North Korea and suspicious of close relations with the United States and Japan — win a legislative majority, Yoon quickly became mired in scandal and political turmoil and was threatened with impeachment. He accused the opposition of engaging in “antistate” activities in alignment with Pyongyang.

The startling news of Yoon’s action, coming as both Biden and Secretary of State Antony Blinken are traveling outside the country, caught the administration by surprise. Shortly after being informed of the situation in Seoul, Deputy Secretary of State Kurt Campbell opened remarks at an unrelated State Department event Tuesday morning by voicing “grave concern” over “the recent developments in the ROK [Republic of Korea].”

As U.S. officials sought more information, Campbell said, “I do want to underscore that our alliance with the ROK is ironclad, and we stand by Korea in their time of uncertainty. I also want to just underscore that we have every hope and expectation that any political disputes will be resolved peacefully and in accordance with the rule of law.”

The coming days are likely to be tense for both Seoul and Washington, although administration officials expressed some optimism that the three-way agreement would endure.

“There is a lot happening at the lower levels across the board, almost on a daily basis,” the U.S. official said. “We think that’ll continue because it’s in our common interest to do so.” The strategy was designed “to insulate it from any political changes or turmoil at the top.”

But Biden will “have to balance how good Yoon has been for U.S. alliance equities and strategic equities in the region versus whether they think this guy can survive,” said Victor Cha, a Georgetown University professor and former East Asia aide in the George W. Bush White House. Yoon and Biden seemed to hit it off during the South Korean’s visit to Washington last year, capped by Yoon serenading a state dinner with a creditable version of “American Pie.”

If Yoon is impeached or otherwise forced to step down, “for the United States, that’s a big loss, because Yoon has been a driver” of the three-way security pact, first agreed to at a Camp David summit in 2023 and institutionalized with a memorandum of understanding last summer. Yoon has also been a proponent of the “Washington declaration” to expand nuclear consultations between Seoul and Washington and to support Ukraine’s defense against Russian aggression, Cha said.

Beth Sanner, a former top intelligence official in both Democratic and Republic administrations, expressed concern that North Korea may seek to take advantage of the chaos in the South. Korea watchers have been worried for months about North Korea conducting some sort of “kinetic action” in the next few months, perhaps shelling a South Korean island or sinking a South Korean ship, Sanner said.

South Korean President Yoon Suk Yeol delivers a speech declaring martial law late Tuesday.
(Presidential Office/Reuters)

North Korean leader Kim Jong Un “could time this for a real dilemma” for President-elect Donald Trump, she said.

The Pentagon, with nearly 29,000 troops stationed in South Korea, quickly declared it had nothing to do with events there. U.S. military personnel were not used to enforce martial law, spokesman Maj. Gen. Patrick Ryder told reporters, and the force protection posture of U.S. service members in the country had not changed in response to political unrest.

Ryder said he was unaware of any requests made by Seoul for military assistance, and repeated — as had officials at the State Department and the White House National Security Council — that the United States was not notified ahead of Yoon’s declaration.

The martial law order, signed by an Army general Yoon put in charge of its implementation, suspended all political activity in South Korea and opened the door for military deployments.

Concerns rose as the Americans — including the commander of American forces in South Korea — were unable to reach their counterparts there, a second U.S. official said. Eventually, although there was no Cabinet-level contact, the administration engaged on numerous levels, officials said.

After several tense hours, as protests in the streets of the capital grew into the night, the National Assembly in Seoul convened an emergency session and voted unanimously — including the head of Yoon’s own Liberal Party — to block the decree.

On Wednesday at about 4 a.m. local time, Yoon went on national television and said the decree was lifted.

In a statement later issued from Brussels, where he is attending a NATO foreign ministers meeting, Blinken said the United States welcomed Yoon’s decision. Referring to the National Assembly vote and the South Korean constitution, he said, “We continue to expect political disagreements to be resolved peacefully and in accordance with the rule of law.”

Alex Horton contributed to this report.

Indian investors eye Sri Lanka’s economic resurgence for greater cross border synergy

Amid Sri Lanka’s journey towards economic recovery, Indian investors and businesses are closely monitoring the emerging opportunities in the local market. 

Indo-Sri Lanka Chamber of Commerce and Industry (ISCCI) Vice Chairman Dr. Naresh Bana shared his perspective recently, on current investment trends, bilateral trade, and collaborative ventures between the two neighbours. 

Despite strong tourism ties, Indian investment in Sri Lanka’s tourism sector remains cautious. “Indian investors, like their counterparts elsewhere, rely on credible data, projections, and business prudence,” Dr. Bana explains. The country’s credit rating challenges, influenced by banking and financial institutions, often determine the final investment decisions.

However, trading relations between the two nations remain robust. 

Dr. Naresh Bana 

On recent economic reforms, Dr. Bana highlights Sri Lanka’s efforts to diversify investment instruments through municipal bonds, real estate investment trusts (REITs), and SME listings. “These initiatives, if executed effectively, could accelerate economic growth,” he states, adding that Indian businesses are observing these developments while awaiting more consistent, reliable data to guide their decisions. 

The ISCCI plays a crucial role in building Indo-Lankan economic ties. “We assist companies in securing industry tie-ups, facilitate bilateral trade, and disseminate policy-related information,” Dr. Bana shares. The Chamber’s initiatives aim to create a supportive environment for Indian investors and help Sri Lankan businesses establish a foothold in India. 

The Blue Economy presents significant collaborative potential for India and Sri Lanka. With expansive coastlines, the two nations can leverage marine resources for mutual benefit. Dr. Bana outlines key areas for cooperation, including Marine Domain Awareness (MDA) and maritime security, fisheries and aquaculture, offshore energy, including hydrocarbons and wind farms, maritime trade and connectivity, tourism and marina development and research and innovation. He emphasises, “Collaboration in these areas would unlock economic and ecological benefits for both nations.” 

The Adani Group’s investment in Sri Lanka is a significant milestone in Indo-Lankan energy cooperation. “The $ 442 million wind power project is not just an investment but a torchbearer for Sri Lanka’s renewable energy aspirations,” Dr. Bana notes. He highlights the project’s potential to stimulate ancillary industries, reduce energy dependency, and position Sri Lanka as a net energy exporter. 

India remains Sri Lanka’s largest trading partner, with bilateral trade reaching $ 5 billion in 2023. The relationship is anchored by India’s ‘Neighborhood First’ policy, which includes development aid, credit lines, and infrastructure investments. 

Indian businesses have established a robust presence across Sri Lanka’s economy. The Tata Group, Bajaj, and Airtel have significant investments in telecommunications, automotive, and financial services. Indian Oil operates in the energy sector, while ITC Hotels has recently entered the tourism and leisure market. Additionally, the Adani Group has made strategic investments, including the development of the Colombo West International Terminal and the acquisition of Singha Cement. All these ventures underline the strengthening economic ties and mutual business interests between India and Sri Lanka.

Dr. Bana also highlighted the importance of the forthcoming Economic and Technology Cooperation Agreement (ETCA), which is expected to further enhance trade and economic ties. 

As Sri Lanka rebuilds, the role of Indian businesses and institutions like ISCCI will be critical in fostering sustainable growth. With shared interests in energy, trade, and the Blue Economy, the Indo-Lankan partnership holds immense promise for regional prosperity. 

Dr. Bana’s insights reinforces the potential for deeper collaboration, driven by strategic investments and mutual trust. As he aptly concludes, “The future of Indo-Lankan relations lies in harnessing each other’s strengths for collective growth.”⍐

Total public debt exceeds $ 100 b, raising concerns about debt sustainability

 

Domestic debt rises to $ 60 b

04 Dec 2024 | By Imesh Ranasinghe The Morning

Sri Lanka’s domestic debt saw a net increase of $ 2.4 billion in the third quarter as the government continues to rely on the domestic debt market with the total domestic debt closing in at $ 60 billion, Finance Ministry data showed.

According to the debt bulletin for the third quarter published by the Finance Ministry, Sri Lanka’s domestic debt rose to $ 59.9 billion from $ 57.4 billion at the end of June.

The total stock of outstanding Treasury bills increased by $ 404.7 million to $ 13.1 billion, while the total stock of outstanding Treasury bonds increased by $ 2.29 billion to $ 44.2 billion.

Furthermore, the total outstanding public debt has increased to $ 103.7 billion in the third quarter from $ 100.6 billion in the second quarter, while the total outstanding external debt increased by $ 716 million to $ 38.2 billion.

Commercial debt represents a significant portion of the government’s external debt which amounted to 38%, followed by multilateral debt (33%) and bilateral debt (29%).

Also, about 85% of the Commercial category debt consisted of international bond issuances (ISBs) and the rest from the term financing facilities (Syndicated loans).

“The Asian Development Bank (ADB) and the World Bank are the major multilateral creditors representing over 87% of the total multilateral debt,” the Finance Ministry said, adding that under bilateral debt, 60% of its debt is represented by non-Paris Club countries while about 40% from Paris Club countries.

Meanwhile, the government has managed to clear local loans in foreign currency amounting to $ 240 million in the third quarter.

Further, the Finance Ministry said that 67% of the government’s external debt consists of the instruments obtained at fixed interest rates, whereas 31% at floating interest rates.⍐