French stocks fall sharply and government bond yields rise after Prime Minister Sébastien Lecornu shocks markets by tendering his resignation, just 26 days after taking office.

Paris

French Prime Minister Sébastien Le Corneau has resigned only 26 days after taking office, following the collapse of his government before it could hold its first cabinet meeting. The resignation was prompted by the loss of key political allies and dissatisfaction from parties such as Les Républicains and the Socialists over cabinet appointments, particularly the selection of Bruno Le Maire as army minister. 

President Emmanuel Macron now faces the task of appointing a new prime minister, the sixth in under a decade, as he seeks to manage a fragmented parliament and address France's budget deficit. The political uncertainty has affected financial markets, with the yield spread between French and German bonds widening. Options for the future include appointing a new prime minister or calling a parliamentary election, with polls indicating strong support for the far right.

French Prime Minister resigns just 26 days after taking office

Oh my goodness me. Charlotte, do you know, I just tapped in into a well-known search engine, Le Corneau, News, and it hasn't even caught up yet with the latest news as well. Um, 13 hours ago, all the things we're talking about, oh, he's forming his government and the mayor and what have you. What an absolute shambles. This is completely uncharted territory. It is government basically collapsing before it even started its work. You know, again, the Prime Minister, Le Corneau, just 26 days in the job, announcing his government last night. The first cabinet meeting was supposed to be this afternoon, but that will not be happening because in the way between the nomination and the potential cabinet meeting this afternoon, the government, Le Corneau, lost some key allies. And we were talking a little bit earlier about the center-right party, Les Républicains, being not happy about the balance in the government and some key nominations in particular saying this did not reflect the promise break by the Prime Minister, Sébastien Le Corneau, particularly when he spoke last week. You remember on Friday, he made some key concessions, particularly saying he would not use that that mechanism of the 49-3, allowing the government to push through the budget without a vote. He said he would not use that too. So key concessions to key parties, particularly the socialists there, calling them for compromise and calling all parties to take their responsibility. But certainly some key nominations that government didn't go down very well, and particularly the one of Bruno Le Maire as army minister. Of course, he was economy minister himself for seven years, a close ally of Emmanuel Macron. And some parties, like Les Républicains, were not happy about this. They said, look, he's the man in charge of the public finances mess that we have now. We are not happy about this. So how they did not know that he was part of the government that they signed up to is also a question. How did they not know until the government was actually announced? But what I heard across the board, including also the socialists, they talk about consternation when that government was named. They say, look, 12 names out of the 18 names in government are already in place. How can we try to do anything new with the same people in charge again? So that is the key question now. And now we have to have Emmanuel Macron name his new prime minister, the sixth in under 10 years. Who could that be? He's tried so many of his close allies. Beirut was a close ally. Barnier was potentially a good call and potentially able to negotiate with different people on board. Le Corneu, a very, very, very close ally and a strong name in the government, also now resigning. So who can become the next prime minister to still deal with this very fragmented parliament and try to put forward some measures to put the budget together and bring the deficit down from 5.4% this year to potentially around 4.7% next year? And that is really the toughest job out there at the moment. And so we have to wait and see what happens now and who the president picks for his next prime minister. Let's get to what the reaction has been, Charlotte. I mean, the yield spread between French and German bonds has now widened 86.5 basis points the level. Let me ask you what the options are for the bond market to think about, because it feels as though Macron has tried this experiment. Everything has come up with the response has been you're not listening. You have not represented what we voted for. Are we getting closer to some form of a far right government or Macron himself stepping out of the Elysee Palace? Well, we have to wait and see what the next steps are, whether he picks a new prime minister, whether the president decides to call for his new parliamentary snap election. There is also another option. Another very final potential option is that the president stepping down himself. But that is very much further down the line. The next potential step would be a new parliamentary election. But as we've seen in many polls, the far right is very much in the lead, potentially there. So that would have some implications also on the market. So a lot of unknown for the next few days, for sure.

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.

French markets tumble after PM Lecornu resigns

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