The resignation of the prime minister triggered a plunge in the Paris stock market, an increase in borrowing costs, and a sharp decline in banks
"If the 3.60% threshold is exceeded, French debt could be exposed to massive attacks, which would increase market nervousness," warned Antoine Andreani, director of research at XTB France.
The spread between French and German bonds, considered a key barometer of relative risk in the eurozone, reached 89 basis points, its highest level in nine months.
Lecornu's resignation, who was appointed prime minister by Emmanuel Macron just a month ago, opened a new chapter of uncertainty in French politics. "The resignation has plunged the political arena into confusion. Investors fear a domino effect on economic and fiscal policy," said Andreani.
The cabinet presented Sunday night, with minimal changes compared to the previous one, received criticism from all sectors, reflecting the fragility of the executive branch. Lecornu, former defense minister, faced the challenge of securing approval for an austerity budget in a fragmented parliament.
His two predecessors, François Bayrou and Michel Barnier, had also been removed by the legislature after clashes over the spending plan, a sign of the growing institutional paralysis affecting the country.
France is experiencing a new political and financial crisis following the resignation of Prime Minister Sébastien Lecornu. On Monday, Paris's CAC 40 index fell by 1.5% in the mid-morning, after having dropped by more than 2% as soon as the announcement was made. The leader's departure worsened the perception of instability in the markets and increased the borrowing costs for the French state.
Bank stocks were the hardest hit. BNP Paribas fell by more than 4%, Société Générale lost more than 5%, and Crédit Agricole dropped by more than 4%. These entities are major holders of sovereign bonds, so any increase in France's country risk directly impacts their balance sheets.
"With the increase in 10-year yields, investors are readjusting their risk," explained Alexandre Baradez, market analyst at IG France.
The yield on French 10-year government bonds—an indicator of the country's financing cost—briefly rose to 3.61% (before retreating to 3.57%). In the previous session, the yield had been 3.51%, reflecting a rapid deterioration in risk perception.
