French equities and bonds decline as government faces possible collapse

France’s financial markets faced considerable upheaval due to escalating political instability. The CAC 40 index, a benchmark for the nation’s major corporations, dropped over 2%, hitting its lowest level in nearly three weeks. Notably, shares of leading banks like BNP Paribas and Société Générale fell by more than 6%, signifying investor unease. Concurrently, the yield on France’s 10-year government bonds jumped to 3.53%, the highest since March, indicating rising borrowing costs and waning investor confidence.

The market turmoil was triggered by Prime Minister François Bayrou’s announcement of a confidence vote set for September 8. His plan to reduce the national deficit, currently at 5.8% of GDP—almost double the EU’s 3% limit—involves €44 billion in budget cuts. However, three main opposition parties have vowed to oppose the vote, which could lead to the government’s downfall. Should Bayrou lose, President Emmanuel Macron would need to decide whether to appoint a new prime minister or call snap elections, both of which could exacerbate political instability.

Finance Minister Éric Lombard warned that failing to enact fiscal reforms might invite intervention from the International Monetary Fund (IMF). He stressed the need for urgent action to prevent external financial oversight. This political uncertainty is affecting broader European markets, as investors reassess financial stability in the region, leading to increased risk premiums on French debt.

The rising public discontent over austerity measures is expected to spark protests in the weeks ahead. The impending confidence vote is crucial for shaping France’s fiscal future and its role within the EU. As the crisis unfolds, market participants remain alert, closely watching developments that could impact investment strategies and economic forecasts.