French Political Turmoil and Budgetary Disagreements Could Bring Down Government

Bridgette Randall
27 Nov, 2024
London

European stock markets traded down, and the spread between French and German bond yields widened amid rising political tensions in France. 

Benchmark indexes in Paris, Frankfurt, Milan, and London declined 0.1% and 1.2% as lawmakers haggle to pass a financial budget for the next year. 

France is struggling to lower its deficit to GDP ratio to 3%, the level required by the European Union, as lawmakers oppose spending cuts on the left and tax increases on the right. 

The French government deficit is expected to rise to 6% in 2024, and the minority government headed by technocratic leader Michel Barnier is likely to collapse if an agreement is not struck by December 25. 

The current budget proposal calls for spending cuts of €40 billion and a tax increase of €20 billion, including higher taxes on electricity and a delay in inflation adjustment to pension payments. 

Two years ago, France increased the retirement age from 62 in increments of three months every year until the age reached 64 in 2030. 

The yield spread between French and German bonds widened to 0.9 percentage points, the highest level since 2012, as French lawmakers struggle to find a compromise. 

French political turmoil comes at a time when China is looking to revive its economic growth through higher exports, the United States is reverting to protectionist policies, and German politicians are divided ahead of elections as the country flirts with a recession. 

 

Europe Indexes and Yields

The DAX index decreased by 0.6% to 19,186.89; the CAC-40 index fell by 1.2% to 7,107.04; and the FTSE 100 index rose by 0.1% to 8,265.64.

The yield on 10-year German bonds edged lower to 2.15%, French bonds inched down to 3.01%, the UK gilts edged lower to 4.30%, and Italian bonds decreased to 3.42%.

The euro edged higher to $1.05; the British pound inched up to $1.26; and the U.S. dollar strengthened to 88.18 Swiss cents.

Brent crude increased $0.15 to $72.96 a barrel, and the Dutch TTF natural gas fell by €0.40 to €46.16 per MWh. 

 

Europe Stock Movers

French banks were under pressure amid political turmoil that could lead to the collapse of the current minority government. 

Société Générale dropped 4% to €24.42, BNP Paribas fell 2.2% to €55.09, and AXA SA decreased 5% to €31.94. 

Just Eat Takeaway.com NV declined 0.5% to €14.79 after the food delivery company announced its plans to delist from the London Stock Exchange, citing low trading volume and high listing costs.

The food delivery company plans to keep its listing on the Euronext Amsterdam. 

Grifols SA plunged 12.8% to €9.28 on local reports that the Canada-based Brookfield Asset Management is likely to drop its plans to acquire the Spanish pharmaceutical firm. 

easyJet increased 0.6% to 543.80 pence after the deep discount airline reported a 25% rise in full-year operating profit following a second record summer in a row. 

Johnson Matthey PLC plunged 6.5% to 1,396.0 pence after the specialty chemical and sustainable technology firm reported a decline in sales and earnings in the six months to September.