The French minority government is facing the risk of collapse, raising concerns among investors and fueling turbulence in the markets. A surprise call for a confidence vote has intensified political uncertainty, leading to major sell-offs in French stocks and bonds.
Prime Minister Francois Bayrou announced on Monday that a confidence vote will be held on September 8. However, opposition parties have strongly rejected his proposed budget cuts, deepening the political deadlock. The situation comes less than a year after the collapse of former Premier Michel Barnier’s government in December 2024.
Experts believe this could be a turning point in France’s political instability, which began after President Emmanuel Macron dissolved the National Assembly in June 2024. That move followed his coalition’s defeat in the European Union elections.
The financial impact has been swift. The CAC 40 index dropped 1.6% on Monday, the day of Bayrou’s announcement, and another 1.5% on Wednesday. Banking giants BNP Paribas and Societe Generale also saw sharp declines of more than 6%. Meanwhile, France’s 10-Year Bond yield rose to 3.53%, the highest level since March.
The crisis is centered around the 2026 budget plan. Bayrou’s proposal aims to reduce France’s deficit from 5.4% this year to 2.8% in 2029, mainly through spending cuts, hiring freezes, and the removal of public holidays. However, critics across the political spectrum have rejected these measures as unfair and unpopular.
Economist Salomon Fiedler warned that Bayrou is at high risk of losing the vote, as the French minority government lacks majority support. If it falls, President Macron may be forced to call early parliamentary elections or appoint a new premier. Either way, political and financial challenges are expected to persist.
France’s economy, burdened by a debt-to-GDP ratio of 113% and one of the highest deficits in Europe, faces a prolonged period of uncertainty. Growth forecasts remain weak at just 0.8% this year, underlining the scale of the crisis.
Read Also: In the fourth night of turmoil, French police detain over 1,000 people
