French lawmakers are set to negotiate a budget compromise on Thursday in an effort to secure enough support to prevent another government collapse and bring financial stability to the country, Bloomberg reported.

A select group of senators and National Assembly members will revise the 2025 finance plan, incorporating concessions from Prime Minister Francois Bayrou’s government.

Bayrou is aiming to win enough indirect backing—particularly from the Socialist Party—to survive an upcoming no-confidence vote over the budget next week.

France is once again teetering on the edge of political and financial uncertainty following months of turmoil that led to the fall of Michel Barnier’s government in December, as per the report.

Since then, the country has been relying on temporary measures to keep the government running. The ongoing instability, coupled with large budget deficits, has triggered market sell-offs and driven up France’s borrowing costs compared to its European counterparts.

Despite the tension, there are signs of optimism, the report added. The likelihood of a budget deal has helped ease some financial pressure, bringing the gap between French and German 10-year bond yields to its lowest level since November. However, uncertainty remains after the Socialist Party withdrew from budget discussions on Tuesday, protesting comments Bayrou made on immigration.

The Socialists, as per the report, are key to the government's survival, as their abstention could block a successful no-confidence vote on the 2025 finance bill next week. Marine Le Pen’s National Rally lawmakers could also play a role by refusing to back a censure motion, though they proved unpredictable when they ultimately turned against Barnier in a crucial vote.

In addition to calling on Bayrou to walk back his immigration remarks, the Socialists have increased their demands for significant budgetary changes. After the Senate passed a version of the bill with deeper tax cuts, Socialist lawmaker Philippe Brun outlined further priorities, including “extra resources allotted to climate funds, prolonged tax increases for big companies, and raises to the minimum wage.” He warned that “to not censure the government, concessions are necessary,” adding, “If we think the budget is more dangerous than censure, then we will censure with no qualms.”

A consensus budget proposal is likely to emerge on Thursday, as most of the 14-member parliamentary committee supports Bayrou. The true test will come on Monday when the bill returns to the National Assembly.

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Bayrou is expected to invoke Article 49.3 of the constitution to pass the budget without a vote, as his government lacks a clear majority. Opposition parties on the far left are prepared to respond with a censure motion that, if successful, would force Bayrou’s resignation. That critical vote is expected on Wednesday.

The prime minister is also anticipated to repeat this process later in February when passing social security-related budget bills.

Earlier this month, Bayrou comfortably survived a no-confidence vote that was unrelated to the budget, as both Le Pen’s far-right party and most Socialist lawmakers chose to abstain.

French economy contracts amid political turmoil

The political turmoil and a fading Paris Olympics boost in the country have led the economy to shrink in the final quarter of last year, Bloomberg reported.

GDP fell 0.1% compared to the third quarter's 0.4% growth, falling short of analysts' expectations for stagnation.

The contraction was driven by slower consumer spending growth and a stagnation in business investment, alongside negative contributions from net trade and stock changes.

This weak performance leaves France in a vulnerable position, particularly as the government struggles with a prolonged budget crisis and is relying on temporary legislation to avoid a shutdown.

The slowdown is affecting the broader eurozone, with analysts predicting minimal growth of just 0.1% for the region.

Furthermore, the European Central Bank is expected to cut rates again, but France’s economic fragility complicates fiscal planning, with tax revenue falling short and soft growth pushing last year’s deficit to around 6% of GDP. Discussions over the 2025 budget will reach a critical point next week, with potential implications for Prime Minister Francois Bayrou’s plans.

Finance Minister Eric Lombard remains hopeful that rate cuts and budget certainty could stimulate growth, although he recently reduced France's growth forecast for 2025 to 0.9%. Companies are cautious, awaiting clarity on the budget before deciding on investments or hiring, while households are anxious due to reduced state investment. Business leaders, including LVMH CEO Bernard Arnault, have voiced concerns that rising corporate taxes may drive investment out of the country.

However, a separate report showed a 0.7% rise in consumer spending for December, exceeding economists' expectations.