Stock prices on the trading floor of the Euronext NV stock exchange in Paris. Photographer: Benjamin Girette\/Bloomberg <\/p>\n
(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.<\/p>\n
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 1.5% by 4:45 p.m. in Paris. The yield difference between French and German 10-year debt \u2014 a key measure of risk \u2014 hit its widest since April.<\/p>\n<\/p>\n
Most Read from Bloomberg<\/p>\n
Investors are getting a reminder of France\u2019s volatile politics and fragile finances as the nation\u2019s assets retreat toward levels seen a year ago. Political wrangling over the government\u2019s debt burden in 2024 ultimately led to the ouster of Bayrou\u2019s predecessor after only 90 days \u2014 and the loss of any semblance of a parliamentary majority for President Emmanuel Macron.<\/p>\n
\u201cThis is a blatant comeback of the risk premium on French assets which had always been in the background,\u201d said Andrea Tueni, head of sales trading at Saxo Banque France. The market is \u201cacknowledging the fact that France is in a deep political crisis amid a difficult economic backdrop.\u201d<\/p>\n
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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%.<\/p>\n
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.<\/p>\n
WATCH: Prime Minister Francois Bayrou called a confidence vote that may topple France\u2019s government as soon as next month. Caroline Connan reports.Source: Bloomberg <\/p>\n
Bayrou said Monday that Macron had agreed to call parliament back into session early in order to allow the government to present its fiscal plan and to hold the confidence motion.<\/p>\n
The far-right National Rally party, the leftist France Unbowed and the Greens all said they would vote against the Sept. 8 motion while the Socialists said they wouldn\u2019t back the government. If a majority of lawmakers vote against Bayrou, he\u2019ll be forced to submit his government\u2019s resignation \u2014 the same fate that befell Michel Barnier\u2019s administration last year.<\/p>\n
Story Continues <\/p>\n
Questioned on French radio about whether the International Monetary Fund will intervene if the country\u2019s finances deteriorate, Finance Minister Eric Lombard said he could not rule out that outcome entirely.<\/p>\n
\u201cIt is a risk that we want to avoid, that we must avoid,\u201d Lombard said. \u201cBut I cannot tell you that the risk does not exist.\u201d<\/p>\n
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Oddo BHF strategist Thomas Zlowodzki said Bayrou\u2019s gamble is risky and there\u2019s a high chance of the government failing. His team is underweight on French stocks on the grounds that their valuations do not fully price this risk.<\/p>\n
Meanwhile, the nation\u2019s 10-year yields are now among the highest-yielding in the euro zone, having already surpassed countries once at the heart of the European sovereign debt crisis such as Greece and Portugal. The moves this week have left the yield just seven basis points below Italy\u2019s.<\/p>\n
\u201cThe big next step would be the yield on French 10-year bonds topping those of Italy,\u201d said Saxo\u2019s Tueni. \u201cThat would really be a significant milestone.\u201d<\/p>\n
What Bloomberg Strategists Say…<\/p>\n
\u201cPolitical instability is eroding French bonds\u2019 traditional core status. With austerity plans dividing parliament, France\u2019s borrowing costs risk climbing further, leaving both bonds and equities struggling to regain momentum.\u201d<\/p>\n
\u2014Nour Al Ali, Macro Markets & Squawk, London. Click here for the full analysis.<\/p>\n
French stocks have been battered since Macron called a snap parliamentary vote early June last year, taking markets by surprise.<\/p>\n
The CAC 40 has dropped about 4% since then, while the Stoxx Europe 600 rose 6%. The CAC is set to underperform the pan-European benchmark for a second year, a sharp turnaround for the French index which outperformed every year but one since Macron was elected in 2017.<\/p>\n
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\u201cI think there has been a lot of complacency across markets about the budget situation in France,\u201d said Vincent Juvyns, chief investment strategist at ING in Brussels. \u201cIt\u2019s a two-tier Europe we have now with some countries like Germany who can afford to spend on growth and those who have no choice but to consolidate their public finance.\u201d<\/p>\n
–With assistance from Greg Ritchie, William Horobin, Vassilis Karamanis, Allegra Catelli, Blaise Robinson, Farah Elbahrawy and Alice Gledhill.<\/p>\n
(Adds comment from French Finance Minister on IMF in ninth paragraph.)<\/p>\n
Most Read from Bloomberg Businessweek<\/p>\n
\u00a92025 Bloomberg L.P.<\/p>\n","protected":false},"excerpt":{"rendered":"Stock prices on the trading floor of the Euronext NV stock exchange in Paris. Photographer: Benjamin Girette\/Bloomberg (Bloomberg)…\n","protected":false},"author":3,"featured_media":177898,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13],"tags":[100795,100794,3638,64,100581,8703,156,100796,8705,100793,135,100792,28561,67,132,68],"class_list":{"0":"post-177897","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-markets","8":"tag-andrea-tueni","9":"tag-axa-sa","10":"tag-bloomberg","11":"tag-business","12":"tag-confidence-vote","13":"tag-emmanuel-macron","14":"tag-france","15":"tag-france-unbowed","16":"tag-francois-bayrou","17":"tag-french-finance-minister","18":"tag-markets","19":"tag-minister-eric-lombard","20":"tag-risk-premium","21":"tag-united-states","22":"tag-unitedstates","23":"tag-us"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@us\/115096914770239173","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/177897","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=177897"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/177897\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/177898"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=177897"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=177897"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=177897"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}