France’s Political Turmoil Sends Stocks Plummeting
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France’s financial markets are in turmoil following the resignation of Prime Minister Sébastien Lecornu, who stepped down just 14 hours after unveiling his cabinet.
This move has sent shockwaves through the economy, causing borrowing costs to spike and stocks to plummet.
The CAC 40 index of blue-chip stocks has taken a significant hit, dropping 1.5% to 1025 GMT.
Also, Bank shares have been particularly affected, with BNP Paribas, Societe Generale, and Credit Agricole experiencing losses of over 4-5%. The yield on 10-year French government bonds has surged to 3.57%, up from 3.51% in the previous trading session.
Market analysts attribute the decline in bank shares to Lecornu’s resignation and the resulting uncertainty in the political arena.
Alexandre Baradez, market analyst at IG France, said the drop in bank shares was due to Lecornu’s resignation.
“With the rise of 10-year yields, investors are readjusting their risk,” Baradez said.
“The yield on 10-year French government bonds, or the country’s cost of borrowing, surged briefly to 3.61 per cent before easing to 3.57 per cent.
It was up from 3.51 per cent in the previous trading session”.
“If the 3.60-per cent threshold is crossed, French debt could be exposed to massive attacks, making markets more nervous,” said Antoine Andreani, who heads research at trading platform XTB France.
The spread between French bonds and their German equivalent — a key measure of how investors perceive France’s credit risk compared to Germany — reached its highest in nine months.
The gap hit 89 basis points compared to 81 the day before.
“Lecornu’s resignation has plunged the political arena into uncertainty.
“Investors fear a domino effect on economic and fiscal policy,” Andreani said.
President Emmanuel Macron named Lecornu, a former defence minister, to the post last month — the shortest stint for a prime minister in modern France.
The largely unchanged cabinet he unveiled late on Sunday sparked fierce criticism across the political spectrum.
Lecornu had faced the daunting task of finding approval in a deeply divided parliament for an austerity budget for next year.
Lecornu’s two immediate predecessors, Francois Bayrou and Michel Barnier, were ousted by the legislative chamber.
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