A selloff in French markets gathered pace after French media reports that Prime Minister Sebastien Lecornu has resigned. French stocks fell sharply, government bond yields were up 8 basis points and the euro was last down 0.65% at $1.1667.

Paris

French financial markets saw notable declines following the resignation of Prime Minister Lecornu, with the CAC index dropping and major French banks such as BNP Paribas, Societe Generale, and Credit Agricole experiencing sharp losses. The political uncertainty has contributed to rising government borrowing costs, with French bond yields reaching their highest levels of the year relative to German bonds.

The market reaction is closely linked to concerns over France's fiscal position, including a high national deficit and debt levels that exceed European Union limits. The return of former finance minister Bruno Le Maire to government has also been cited as a factor, given his role in previous fiscal policies. The combination of increased government spending during recent crises and tax cuts has left France with a substantial budget deficit and slow economic growth.

French markets tumble after PM Lecornu resigns

It could be worse, though. It must be said. 1.9% for the CAC, in the middle there, is a significant drop, but not terribly precipitous. Where we are seeing some very precipitous drops are in the shares of French banks, as the country's finances now once again thrown into even more uncertainty. We're seeing the likes of BNP Paribas down nearly 4%. You've got Societe Generale down nearly 5%. There's Credit Agricole also down nearly 5%. So those French banks obviously taking a big hit as that news breaks. Also, of course, the government's borrowing costs. A lot of this political crisis is driven, of course, by France's debt crisis and how much the country owes. Its borrowing costs keep going up every time there's more political chaos, every time that the country's credit gets downgraded. Investors demand more to lend the country money. We're seeing bond yields versus the German benchmark spreads between the French 10-year bond and the German 10-year bond at their highest since the beginning of the year, at least, if not more. It's around nearly nine-tenths of a percent of the French borrowing costs, closing in on 3.6% for the bond yields there. So obviously, stock investors perhaps not necessarily accustomed, but already bracing for French political chaos. Maybe not quite as abruptly as we're seeing today, but the falls on the stock markets could be worse. So where we're seeing it really is in banking shares. A lot of this reaction, would you say, Brian, to Bruno Le Maire? That is what a lot of the chatter is, in fact, on the financial scene there. Bruno Le Maire, of course, was Emmanuel Macron's finance minister for the first seven years of his term. We look at the results. A lot of people blame him for France's current fiscal situation. We see the deficit projected for this year, 5.4%. Last year, it was at nearly 6%. That's twice the EU limit. National debt, 115.6% of GDP. Once again, nearly twice the EU limit. Just had a credit downgrade in September. There's more reviews coming at the end of this month and at the end of November. Almost certain to be downgraded again, especially after today's developments. But Bruno Le Maire obviously has a lot to do with that. He was working for Emmanuel Macron. These are Emmanuel Macron's policies as well. But you had twin kind of crises that really blew up the government debt. You had, of course, COVID and France's famous quacking en coute, whatever it costs to prop up companies, prevent layoffs, save jobs fairly widely appreciated, you would probably imagine, by businesses and employees who are at risk of being laid off at the time. However, definitely add to the national debt. Then you had Russia's invasion of Ukraine and the massive spike in natural gas prices coming into Europe. The French government protected consumers from that. You saw huge raises in prices in the UK and Germany. French consumers definitely saw some, but not nearly to that level. And that was largely born by government spending, which added to the debt. At the same time, you had Macron wanted tax cuts to try to boost business investment growth. We had the ISF, the imposoider, sort of fortune that's just a wealth tax, the previous wealth tax that France had was eliminated. That took billions out of government revenues per year. There were other corporate tax cuts, also middle class tax cuts. Macron was hoping to get revenues from things like the fuel tax that he had imposed, but that sparked the yellow vest movement. So that had to be taken back. So there's a lot of spending on the one hand and tax cuts with revenues that were expected to come in to make up that downfall that just didn't happen, left us with this huge budget hole. Macron was hoping that growth would make up for that too, but we've seen very anemic growth in France, 1.1% last year. So obviously, those who saw Bruno Le Maire coming back to a very important cabinet post might have said, wait a minute, this is the guy who got us to where we are. Where is the change of course? And so you saw the Republican in particular, Bob, really like having a crisis meeting and perhaps not about to support the government they were about to be a part of. So it's probably a big reason why we're seeing Le Corneau resign. You do wonder what was in Bruno Le Maire's head, don't you? Because only when he left the previous government, he said, there's absolutely no way I'm going to go back into the government. And yet there he is back in the government and potentially his being back in the government being one of the reasons why that government has now fallen. Couldn't resist, I guess. Exactly. Maybe that was the case. Thank you so much, Brian Quinn, our business editor on France 24.

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