French Markets in Turmoil as Legislative Election Uncertainty Sparks Financial Fears

France is facing a period of financial turbulence as political uncertainty looms over the upcoming snap legislative elections, with the CAC 40 index falling 2.7% and French stocks seeing a $220 billion wipeout in market capitalization. The political crisis, sparked by President Emmanuel Macron’s decision to dissolve the National Assembly following a defeat in the European Parliament elections, has led to fears of a financial crisis not seen since the eurozone’s troubles in 2011. Investors are particularly wary of the far-right National Rally’s (RN) ‘France first’ agenda and the left-wing alliance’s economic proposals, both of which could significantly impact the country’s financial trajectory. Finance Minister Bruno Le Maire has echoed these concerns, warning that the RN’s policies could lead to a rise in government debt and a widening budget deficit, reminiscent of the UK’s financial crisis under former Prime Minister Liz Truss. The yield on French government bonds has surged, and the premium demanded to hold French bonds instead of German equivalents has widened to its highest level since 2017. The political uncertainty has also affected the euro, which has fallen against the US dollar. Amidst this financial uncertainty, the left-wing parties in France have united behind their ‘Nouveau Front Populaire’ program, which proposes a total break with Macron’s policies, including the abolition of the pension reform, unemployment insurance, and immigration law. As France braces for the elections on June 30 and July 7, markets remain anxious, and the government’s alarmist messages have only contributed to the unease.

Key points

• The French stock market has experienced significant losses ahead of the legislative elections, with the CAC 40 index dropping 2.

7%.

• The risk premium for French government bonds has risen to its highest level since 2017, indicating investor concern.
• Finance Minister Bruno Le Maire has warned of a potential financial crisis if the far-right or left gains power.
• The left-wing parties have united behind the ‘Nouveau Front Populaire’ program, proposing significant economic reforms.
• French stocks lost approximately $220 billion in market capitalization following the announcement of snap elections by President Macron.