Prime Minister François Bayrou’s announcement of a confidence vote on September 8th has sent markets into a tailspin. With MPs poised to potentially topple the government, investors fear this confirms France’s ongoing struggle to enact much-needed reforms amid months of instability.
The prime minister’s speech was intended to be responsible, reminding the French people of the importance of the debt, which has become the state’s largest item of expenditure—but it had the opposite effect on the financial markets. At the opening, the Paris stock market index, the CAC 40, was down nearly 2%, after already closing down 1.59% the previous day. The contagion spread to European stock markets, which were also seized by panic in the face of this new episode of the French crisis.
The shares that lost the most were those of French banks, as they hold large quantities of French debt securities. Banks fear a further downgrade of France’s credit rating by the rating agencies. Statements by the far Left, such as Jean-Luc Mélenchon’s public acceptance of the risk of France defaulting on its debt, are not helping to reassure investors.
The yield on France’s ten-year government security stands at 3.50%, close to Italy’s ten-year rate (3.57%), which has long been seen as a warning sign. But unlike Macron’s France, Meloni’s Italy has been able to inspire investor confidence for several months now. The longevity of the Italian centre-right coalition government, elected in September 2023, is surprising and reassuring in a country long characterised by political instability.
But the crisis looming in France is political rather than financial. Opposition forces, on both the left and the right, are now demanding the resignation of Bayrou, followed by that of Emmanuel Macron, holding them responsible for a deadlock that appears surmountable only through a radical change in political leadership.
