By Elena Vardon
Dow Jones-France Financial markets Slipped on Tuesday after Prime Minister Francois Bayrou, in response to the growing opposition to his budget for 2026, announced the question of trust in parliament.
Bayrous press conference on Monday fueled the fear of a collapse of the government. Most of the opposition parties have signaled that they will probably deny the question of trust on September 8, since the talks about the proposals of the premier to reduce the budget deficit of the country. If the government plunge, President Emmanuel Macron would have been forced to appoint a new prime minister or to call out parliamentary elections.
“Bayrous decision to establish the budget to a vote of trust is a last attempt to enforce a settlement with, as he calls it, ‘urgency and severity’ of the French budget situation,” Charlotte de Montpellier, economist at ING, in a message to customers.
The challenges for the second largest economy of the EU are now also reflected in the financial markets: France either has to make strict budget cuts or continue to deal with political uncertainty. The leading index CAC 40 lost around 2 percent on Tuesday morning and developed worse than its European competitors, whereby the effects of the political unrest of the last summer are still remembered.
“This new political crisis continues the political instability and political lack of transparency that France has burdened since Parliament was dissolved in June 2024, and still exacerbates,” Write Arnaud Mares and Michel Nies from Citi in a research note. The situation underlines the obvious inability of France to regain control of his budget dynamics, which increases the risk of downgrading the country rating.
The French banks Societe Generals, BNP Paribas and Credit Agricole were the weakest values in the CAC-40 index on Tuesday morning with price losses of more than 5 percent. The banks also hold a significant part of the government bonds, and the increase in the return of 10-year-old French government bonds also contributed to the burden of their share prices.
“France’s political instability becomes an economic burden,” continued de Montpellier. The adoption of the budget for 2026 becomes even more difficult and budget consolidation should be delayed, which could make the country’s debt worse and a lot of burden on the economy.
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(End) Dow Jones Newswires
August 26, 2025 07:02 ET (11:02 GMT)
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