French Markets Plunge After PM Lecornu’s Resignation

France woke up to a political earthquake. The sudden resignation of Prime Minister Sébastien Lecornu has sent shockwaves through financial markets, triggering sharp declines across equities, bonds, and the euro. This unprecedented political development has raised serious questions about France’s near-term stability and its broader position within the European economic landscape.

Market Reaction: A Sudden and Broad-Based Sell-Off

The CAC 40 index fell by more than 1.5 %, making it one of the worst performers among European benchmarks. Banking stocks led the decline, with BNP Paribas, Société Générale, and Crédit Agricole plunging between 4 % and 5 %. The sell-off reflected growing unease about the political vacuum at the heart of the French government.

On the fixed-income side, yields on 10-year French government bonds rose by roughly 8 basis points, widening the spread against German Bunds to its highest level since January. This widening spread is widely interpreted as a barometer of sovereign risk: investors are demanding a higher premium to hold French debt.

The euro weakened notably, falling by about 0.65 % to around $1.1667, underscoring international investors’ mounting concerns over political direction in the eurozone’s second-largest economy.

A Political First Under the Fifth Republic

Lecornu’s departure is historic. It marks the first time under the Fifth Republic that a prime minister has resigned before addressing Parliament, a symbol of the depth of political fracture in Paris.

This resignation comes against a backdrop of a fragmented parliament, repeated leadership reshuffles, and a looming budgetary standoff. Analysts warn that the resignation sharply raises the odds of a snap election, the appointment of a technocratic caretaker government, or an extended period of political paralysis.

President Emmanuel Macron now faces mounting pressure to provide direction. Whether through forming new alliances, dissolving parliament, or attempting to restore cohesion, his response in the coming days will shape both market confidence and France’s political trajectory.

Implications for France and the Eurozone

The consequences extend well beyond France’s borders. Investor sentiment across the euro area is being tested, particularly around issues of sovereign creditworthiness and fiscal discipline.

The widening yield spread between French and German debt reflects growing skepticism about policy continuity and governance in Paris. Financial institutions — especially French banks — could face elevated funding costs and increased credit risk assessments.

This political turmoil also comes at a delicate moment for Europe: the continent is contending with sluggish growth, energy transitions under strain, and structural reform debates. France’s instability adds a new source of volatility to an already complex macroeconomic environment.

Sources: Reuters, Investing.com