French government collapse could harm economy, ECB chief warns

"What I have observed over the past six years (in this position) is that political developments and the emergence of political risks have an obvious impact on the economy, on how financial markets assess country risk, and are therefore a matter of concern for us," Lagarde told Radio Classique, according to the broadcaster BFM TV.

However, she said she was not concerned at this stage about France coming under International Monetary Fund (IMF) supervision.

“Countries turn to the IMF when they face a severe current account deficit and are unable to meet their obligations. That is not the case for France today,” Lagarde explained.

French Prime Minister Francois Bayrou’s minority government faces collapse after he called a vote of no confidence for Sept. 8.

Bayrou is seeking support for a plan to save nearly €44 billion ($51 billion) as part of efforts to reduce France’s soaring public debt, which now stands at 113% of the country's GDP.

France also has one of the bloc’s largest budget deficits at 5.8%.

Warning that the country is “on the brink of over-indebtedness,” Bayrou urged lawmakers to choose “responsibility over chaos.”

Opposition parties across the spectrum, from the far-left France Unbowed (LFI) to the far-right National Rally (RN), as well as the Socialists, have vowed to vote against the government.

Adding to the pressure, French labor unions have called for a nationwide protest on Sept. 10 under the slogan “Let’s block everything.”

Budget negotiations have been a major source of tension in French politics.

The failure to reach an agreement on the 2025 budget last year led to the collapse of the Michel Barnier government in December, after left-wing and far-right parties united behind a no-confidence motion.