The unexpected resignation of the French Prime Minister Sebastien Le Corneille is increasing investors' concerns about the political and budgetary situation in the country, which is putting pressure on the quotations on the Paris Stock Exchange and increasing the government debt, reported Agence France-Presse, BTA reported.
The Paris Stock Exchange ended yesterday's trading with a decline in the main index of 1.36 percent, and the yield on 10-year French government bonds rose to 3.61 percent immediately after the resignation was announced, before returning to a level of 3.57 percent at the end of the day. The euro also fell against the dollar.
The political impasse, budget uncertainty and market volatility are starting to raise increasing concerns among investors.
The threat of a dissolution of parliament
"There is a possibility that the National Assembly will be dissolved," Philippe Cohen, a portfolio manager at "Kiplink", told AFP. French President Emmanuel Macron said he was ready to "take responsibility" if the outgoing Prime Minister Sebastien Le Corneille suffered another setback. He gave him 48 hours to make a last-ditch attempt at negotiations.
Investors are also wary of a return to power by the left, which could overturn pension reforms and raise taxes. The left is seen as more willing to spend and therefore less able to manage France's debt, Cohen explains.
The lack of a budget
"We have an unknown on the financing of the 2026 budget, and the markets don't like the unknown", Cohen adds.
The resignation of Sébastien Lecornu raises doubts that the budget can be presented by October 13, making it more likely that a special law will be adopted to allow the minimum functioning of state structures.
On the debt market, the yield on 10-year French government bonds exceeded 3.61 percent, reaching its highest level since March, before falling to 3.57 percent at the end of yesterday.
The spread - the difference between the yields on French and German 10-year government bonds - reached 0.85 percentage points for the first time since January. Before President Macron dissolved the National Assembly in June 2024, the gap was around 0.50 points.
A political crisis that drags on
Lecornu's resignation highlights the "fragile nature of the French political system", notes Danny Hewson, head of financial analysis at "AJ Bell". "The big question is what happens next, because after five prime ministers in two years, finding a working – even temporary – "a solution is becoming increasingly difficult," he added.
The dissolution of parliament in 2024 halted the rise of the CAC 40 index, which had risen 6 percent year-on-year before the political crisis began in June, but ended the year down 2.15 percent. Since then, the leading index on the Paris Stock Exchange has been "returning to historical highs" and "catching up," Cohen noted. Since the beginning of the year, the CAC 40 has risen about 8 percent, compared with almost 16 percent for London's FTSE 100 and 22 percent for Frankfurt's DAX.
Safety net
However, observers see little risk of the French crisis spreading beyond the country's borders. "The French market is suffering from its domestic political problems," Cohen summarized. "The sharp decline in French bank shares, the depreciation of the euro against the dollar and the widening of spreads highlight the gravity of the prolonged stalemate in French politics," he said.
"The widening of spreads is not yet sufficient to trigger the European Central Bank's (ECB) Transmission Protection Instrument (TPI)," analysts at "Evercore ISI" said.
In the event of tension in the debt market, the ECB has this instrument at its disposal, which allows it to buy government bonds whose yields rise too quickly relative to German ones. "The existence of this safety net continues to help contain the rise in French bond yields," the analysts concluded.