French Political Crisis: Paris Stock Exchange Under Pressure

On Wednesday, the Paris Stock Exchange closed sharply lower due to concerns over the 2025 budget amid the French political crisis. The CAC 40 index fell by 0.72% to 7,143.03 points, a drop of 51.48 points, following a 0.87% decline on Tuesday.

Underperforming Compared to Europe Compared to its European neighbors, the Paris market was more significantly affected. The Frankfurt DAX index fell by only 0.18%, Milan by 0.23%, while London rose by 0.20%. This underperformance reflects the instability in the French political scene.

François Rimieu, an analyst at Crédit Mutuel Asset Management, emphasized, “Under the Fifth Republic, France is experiencing a rare political crisis amid an already worrying economic backdrop.”

A Heavy Political Crisis Lacking a majority in the National Assembly, the government plans to use Article 49.3 of the Constitution to pass the budget without a parliamentary vote. However, this decision could trigger a motion of censure announced by the left-wing coalition, the New People’s Front (NFP). If the National Rally (RN) supports this motion, the Barnier government could collapse, leading to the failure of the 2025 budget draft.

Impact on the Bond Market This political instability has a direct impact on the sovereign debt market. The gap between the 10-year borrowing rates of France (3.02%) and Germany (2.16%) reached its highest level since July 2012, nearing 0.90 points at the start of the session before stabilizing.

Symbolically, French rates temporarily exceeded those of Greece, an unprecedented situation since the Greek crisis of 2015. Ultimately, the yields of both countries closed at the same level.

Sentiment: Negative