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France’s route out of political turmoil once again reached an impasse on Monday as Prime Minister Sébastien Lecornu resigned less than a day after his cabinet was unveiled.
The news jolted already-wary investors, pushing French stocks down and bond yields up.
As of around 10.30 CEST, the CAC40 Index was down around 2% at 7,916.36. The yield on 10-year French bonds rose seven basis points to 3.58%, widening the gap with the yield on 10-year German bonds to a nine-month high.
The euro, meanwhile, fell against most major currencies excluding the Japanese yen, notably falling 0.55% against the dollar.
Shares in French lenders Société Générale, BNP Paribas, and Crédit Agricole fell 6.21%, 5.28%, and 4.85% respectively.
Lecornu’s resignation further darkens France’s economic outlook as it seeks a way out of a budget crisis that has brought down successive governments.
The country has seen five prime ministers in less than two years as centre, left, and far-right parties fail to agree on a solution to tackle France’s debt.
The national debt now sits at more than €3 trillion, around 114% of Gross Domestic Product (GDP).
“Lecornu’s surprise resignation significantly increases the pressure on Emmanuel Macron to dissolve the National Assembly and call snap legislative elections. We believe this is now the most likely scenario,” said Leo Barincou, senior economist at Oxford Economics.
He added: “Bond spreads have ticked up, but the broader economic impact is likely to remain limited: political instability has become an entrenched feature of France’s landscape, and neither businesses nor markets are likely to substantially change their views after the fall of yet another minority government. Fiscal consolidation will not occur, but it was never likely to in the first place.”
This is a developing story and our journalists are working on further updates.
