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French stocks, euro hammered as government teeters near collapse
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French stocks, euro hammered as government teeters near collapse
Dec 2, 2024 12:42 AM

LONDON, Dec 2 (Reuters) - Investors punished French

stocks and bonds and sold the euro on Monday, as the government

in Paris faced a no-confidence motion over its proposed budget

in the coming days that risks bringing it down.

Prime Minister Michel Barnier's government appears close to

collapse after the far-right National Rally (RN) said on Sunday

it would likely back a no-confidence motion in a dispute over

the budget.

Blue-chip stocks on the CAC 40 dropped 1.2% in early

trading, as shares in banks and insurers fell, while the extra

premium that investors demand to hold French debt rather than

benchmark German bonds rose.

The euro was the worst-performing major currency

against the dollar on Monday, falling by as much as 0.69% to a

session low of $1.0525, having lost 2.8% in November, its

largest monthly slide since May 2023.

RN lawmaker Marine Le Pen on Sunday issued Barnier with an

ultimatum to make further concessions over his unpopular budget

or risk the no-confidence motion.

"Our team had thought that Le Pen may not want to bring down

the government and be blamed for a French financial and economic

crisis. Yet it looks like the pressure may stay on the euro with

a potential no-confidence vote coming on Wednesday," ING

strategist Chris Turner said.

French borrowing costs also rose on Monday above those of

Greece for the first time on record, according to

LSEG data. Greece is traditionally one of the euro zone's

weakest economies and the move in French borrowing costs is a

stark sign of the political and economic stress facing France.

The gap between France and Germany's 10-year bond yields - a

measure of French borrowing costs compared to the euro zone

benchmark - rose 6 basis points (bps) to 86.5 bps. The spread

jumped to 90 bps, its highest since the euro zone crisis of

2012, last week when tensions over the budget shot higher.

Standard & Poor's on Friday held its rating on France's

long-term sovereign debt steady, in a fleeting moment of relief

for Barnier's government. However it said it could cut the

rating if the government is unable to reduce its large budget

deficits.

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