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.