Political crisis in France deepens stock market declines

On Tuesday, financial markets in Europe are experiencing significant declines, with the Paris stock exchange suffering the biggest losses. The French CAC 40 index falls by 1.9% in the morning, marking one of the worst performances on the continent that day. In comparison, the German DAX index loses 0.8%, while the British FTSE 100 drops by 0.6%. The worsening sentiment is driven by escalating political tensions in France and growing investor uncertainty regarding assets from the country. Additionally, concern is raised by the latest data showing food price increases at their fastest pace since February 2024.

A key destabilizing factor is the announcement by Prime Minister François Bayrou, who declares that on September 8 he will ask the parliament for a vote of confidence. This risky move could end his tenure and is already causing unease in financial markets. The French political scene is once again in a state of limbo: although Bayrou formally holds power, he lacks stable parliamentary support. His government operates without a formal majority, and the fragmentation of the political landscape into left-wing, center-right, and far-right factions significantly hampers reaching agreements. The Prime Minister seeks to maintain dialogue and continue crucial reforms, including the 2023 pension reform, despite growing criticism from the opposition.

The greatest concern is that the Socialist Party, holding key votes in the National Assembly, declares it will not support Bayrou. This places them alongside other opposition groups who also plan to vote against the Prime Minister.

Analysts warn that France is in a deep political crisis overlapping with a difficult economic situation. The budgetary chaos may further burden the largest companies listed on the CAC 40, which are already noticeably underperforming the rest of the European market in 2025. The declines on the Paris stock exchange continue a trend observed since the beginning of the year, where the French equity market lags behind major European benchmarks. This is caused not only by political tensions but also by concerns over the impact of planned budget reforms, which include, among other things, a 44 billion euro reduction in expenditures.