The plunge started on Monday, after the announcement of the dissolution. The CAC 40, the flagship index of the Paris Stock Exchange, fell by 6.48% in five days (-2.66% for Friday alone). Nearly 160 billion euros of capitalization evaporated, in the worst stock market week recorded since March 2022, after Russia’s invasion of Ukraine.
If all the CAC 40 companies suffered the damage from this storm, it was the banks (which hold 7.7% of the national public debt), BNP Paribas, Crédit Agricole, Société Générale and BPCE, which were the first. victims. Société Générale (-14.87%), already weakened before the European election, was sanctioned more than its competitors. Groups specializing in infrastructure – more exposed to their domestic market – also suffered sharp declines, like Veolia (-9.89%).
Stock market: the political crisis in France is causing the financial markets to plunge
The prospect of the National Rally coming to power at the start of the week, or the New Popular Front, on the eve of the weekend, is sending the French market into another world. “We haven’t seen anything yet,” warns the director of a large financial institution. “Given the uncertainty, it is impossible to invest in French stocks until July 7, we are not touching them anymore. But from the 8th, it risks going downhill. » The director of a bank specializing in wealth management confides: “We direct our clients towards American stocks. »
On the markets where government securities are traded, French Treasury borrowings are already moving away from the German benchmark. The gap (the “ spread “) between the French and German interest rates widened spectacularly in a few days, going from 0.49% before the European elections to 0.7% five days later. Unheard of in such a short period of time, except at the height of the sovereign debt crisis in December 2011.
Further deteriorations of the tricolor note
France’s public debt, one of the highest in Europe as a percentage of GDP, looks like a powder keg. Until now, Bercy borrowed without worrying its creditors. But the concern arising from the dissolution threatens to increase interest rates, to cover a risk of non-repayment, therefore making loans much more expensive. “The programs of the RN and the New Popular Front raise fears of an explosion in public debt, already very high in France”, underlines Éric Dor, director of economic studies at the IÉSEG School of Management.
Since this week, French bonds have been less highly rated than those of Portugal, a country rated three notches below France by financial agencies. Lisbon’s five-year bonds are cheaper than those of Paris. And further downgrades of the tricolor rating, today AA-, are not excluded. A perspective clearly stated by the Moody’s agency on June 11.
Economists construct all the scenarios
“Some recent experiences have shown that the sanctions of the markets could fall without delay”, writes Bruno Cavalier, chief economist at Oddo BHF, in a note to traders. And to recall the misadventure of former British Prime Minister Liz Truss, swept away in 2022 by the financial tornado after the announcement of unfunded tax cuts, which also earned her the infamous mark of a warning from the IMF.
While waiting to know precise costing of the programs and the real intentions of the parties, economists are working out all the scenarios. None are reassuring. In the event of a disaster, Philippe Waechter, director of economic research at Ostrum Asset Management, warns: “The IMF will not intervene for several months, even if France’s budgetary situation has been a source of concern for a long time. On the other hand, European Union sanctions could be decided quickly in Brussels, with a freeze on subsidies. » And to also fear the abandonment of industrial projects: “A large part of the investments announced during the last edition of the Choose France summit could be postponed, or even never see the light of day. »
A British analyst is even more alarmed: “France is the second largest economy in the euro zone. The possibility of a major economic slippage in the country scares investors, who hold 53% of French debt, much more than the default of Greece in 2011. It would be a crisis of such magnitude that it could destroy the ‘euro. » The European currency experienced its worst week (-1.2%) in two months, recording its biggest drop against the dollar on June 14.
