President Emmanuel Macron insisted he will serve the rest of his term until 2027. However, he will need to appoint a new prime minister for the second time after July's legislative elections led to a deeply divided parliament.
Macron will address the French on Thursday evening, his office said, without providing details. Barnier is expected to formally resign by then.
A conservative appointed in September, Barnier becomes the shortest-serving prime minister in France's modern Republic.
“I can tell you that it will remain an honor for me to have served France and the French with dignity,” Barnier said in his final speech before the vote.
“This no-confidence motion… will make everything more serious and more difficult. That’s what I’m sure of,” he said.
Opposition to Barnier's proposed budget
Wednesday's crucial vote rose from fierce opposition to Barnier's proposed budget.
The National Assembly, France’s lower house of parliament, is deeply fractured, with no single party holding a majority. It comprises three major blocs: Macron’s centrist allies, the left-wing coalition New Popular Front, and the far-right National Rally. Both opposition blocs, typically at odds, are uniting against Barnier, accusing him of imposing austerity measures and failing to address citizens’ needs.
Speaking on TF1 television after the vote, National Rally leader Marine Le Pen said "we had a choice to make, and our choice is to protect the French" from a "toxic" budget.
Le Pen also accused Macron of being “largely responsible for the current situation,” adding that “the pressure on the President of the Republic will get stronger and stronger.”
Speaking at the National Assembly ahead of the vote, hard-left lawmaker Eric Coquerel had called on the government to “stop pretending the lights will go out,” noting the possibility of an emergency law to levy taxes from Jan. 1, based on this year’s rules.
“The special law will prevent a shutdown. It will allow us to get through the end of the year by delaying the budget by a few weeks,” Coquerel said.
Macron to pick a new prime minister
Macron must appoint a new prime minister, but the fragmented parliament remains unchanged. No new legislative elections can be held until at least July, creating a potential stalemate for policymakers.
Macron said discussions about him potentially resigning were “make-believe politics” during a trip to Saudi Arabia earlier this week, according to French media reports.
“I’m here because I’ve been elected twice by the French people,” Macron said. He was also reported as saying: “We must not scare people with such things. We have a strong economy.”
Impact on financial markets
While France is not at risk of a U.S.-style government shutdown, political instability could spook financial markets.
France is under pressure from the European Union to reduce its colossal debt. The country's deficit is estimated to reach 6% of gross domestic product this year and analysts say it could rise to 7% next year without drastic adjustments. The political instability could push up French interest rates, digging the debt even further.
Carsten Brzeski, global chief of macro at ING Bank, said uncertainty over France’s future government and finances is deterring investment and growth. “The impact of France not having a government would clearly be negative for the growth of France and hence the Eurozone,” Brzeski said.
France has seen bond market borrowing costs rise, bringing back ugly memories of the Greek debt crisis and default in 2010-2012.
Analysts say France is far from a similar crisis because much of its outstanding debt does not come due for years, and because its bonds remain in demand due to a shortage of German government bonds. Additionally, the European Central Bank could intervene to lower French borrowing costs in case of extreme market turmoil, though the bar for that remains high.
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AP Journalist David McHugh in Frankfurt, Germany, contributed to the story.
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