Political instability leads to stress in French financial markets
Coming up: The recent announcement of early parliamentary elections in France has sparked significant movement in the nation's financial markets. Stock markets witnessed a steep decline, French and Italian government bond yields soared, and the euro's exchange rate remained under intense pressure.
The shocking news of new elections for the National Assembly, scheduled for June 30th and July 7th, was delivered by President Emmanuel Macron. This decision was made in response to the far-right Rassemblement National (RN)'s triumph in the European elections. According to polls, the RN is currently ahead in the race for the parliamentary seat.
To add to the confusion, left-wing parties in France have decided to team up and run as a coalition for the parliamentary elections. This move seems to be decreasing the already weak chances for the center-ground, which Macron prefers. Both the right-wing and left-wing parties are now making large spending pledges to woo voters.
Ratings agency S&P Global Ratings (previously known as Standard and Poor's) downgraded France's creditworthiness, while Moody's expressed concern: "The early elections in France would only hinder fiscal consolidation," it stated.
The effects of these changes were felt deeply in the bond markets. French ten-year government bond yields reached a high of 3.32% - the highest level since November 2023. Yields in Italy rose just as dramatically.
The French stock market faced an equally challenging day. The CAC 40 index recorded a drop of 1.22% to end at 7798.50 points during the early afternoon. The euro's exchange rate also dipped, hitting a low of 1.0724 US dollars - a level not seen since early May.
French Economy Minister, Bruno Le Maire, voiced his concerns on BFMTV, warning of a possible "national crisis" if no clear majority is formed in the elections. "We are on the verge of a state crisis," he said. "The elections on June 30th and July 7th are about determining the future of the French nation." The minister urged for a unified defense of shared values and ideals.
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Given the political uncertainty in France, international financial institutions have expressed concern about the country's financial markets. For instance, S&P Global Ratings downgraded France's creditworthiness, citing the early elections as a contributing factor to potential fiscal instability. Meanwhile, French investors have been printing out financial reports and news articles, seeking to better understand the potential impacts of the political shifts on their investments.
