Stock prices on the trading floor of the Euronext NV stock exchange in Paris. Photographer: Benjamin Girette/Bloomberg
(Bloomberg) — French assets came under pressure for a second day as concern the government will fall in a showdown over proposed budget cuts rattled investors.
The benchmark stock gauge slumped as much as 2.2%, extending losses from Monday when Prime Minister Francois Bayrou announced that he would call a confidence vote in his own government. It pared losses to 1.4% by 2:29 p.m. in Paris. The yield difference between French and German 10-year debt — a key measure of risk — hit its widest since April.
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Investors are getting a reminder of France’s volatile politics and fragile finances as the nation’s assets retreat toward levels seen a year ago. Political wrangling over the government’s debt burden in 2024 ultimately led to the ouster of Bayrou’s predecessor after only 90 days — and the loss of any semblance of a parliamentary majority for President Emmanuel Macron.
“This is a blatant comeback of the risk premium on French assets which had always been in the background,” said Andrea Tueni, head of sales trading at Saxo Banque France. The market is “acknowledging the fact that France is in a deep political crisis amid a difficult economic backdrop.”
French financial stocks were among the biggest decliners, with AXA SA, Societe Generale SA and BNP Paribas SA all down 6% or more at one point. A Barclays Plc basket basket containing companies most exposed to French domestic risks, including fallout from the budget, slid as much as 4.4%.
The euro fluctuated against the dollar, before climbing 0.3% to about $1.1650 amid broad-based weakness in the greenback. One-week volatility headed for its biggest jump in a month, with the political risk in France adding to the move.
WATCH: Prime Minister Francois Bayrou called a confidence vote that may topple France’s government as soon as next month. Caroline Connan reports.Source: Bloomberg
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