The French political saga shows no signs of abating, with the shock resignation of PM Lecornu plunging the country into a fresh period of uncertainty. President Macron faces another undeniable conundrum in his quest to break the current political deadlock.
He’s again faced with three options in descending order of likelihood: appoint France’s sixth prime minister in two years, call snap elections or resign.
With the latter probably not on the cards, and given how badly the elections went for the president last time round, a new PM is probably the likely course of action, but it’s not remotely clear how anyone can break the political paralysis and force through a 2026 budget.
At the time of writing, the spread between the 10-year yield in France and Germany, a gauge for the risk premium attached to French assets, has risen to 86 basis points, around the levels following the collapse of the Barnier government in late 2024.
For now, there are limited signs of contagion, and as long as that remains the case, losses in the euro will likely be limited.
This could change should the crisis deepen, or the big three agencies downgrade France’s credit rating.