The French stock market responds with falls to a possible new government crisis.

BarcelonaFrench Prime Minister François Bayrou announced on Monday that he will submit to a vote of confidence on September 8th.cuts of 44 billion eurosin the 2026 budget, a referendum that will fall just before the first major protest called for the 10th. Following the news, the French stock market opened Tuesday trading lower. The CAC40, the main French index, rose with losses of over 2.5%, which eased throughout the morning. At midday, the index was down 1.72%, closing the session at -1.59%.

The market reaction points to the possible new government crisis facing France. If the Prime Minister fails to overcome the vote of no confidence in the National Assembly—a possible scenario, given that the centrists and conservatives who support him do not have an absolute majority—he would have to resign, and a new government crisis would ensue. Marine Le Pen's party and the environmentalists have already announced that they will not support Bayrou.

Of the 40 companies that make up the CAC40, 10 have started the session falling between 2.5% and 6.5%. The declines were led throughout the day by the banking sector Société Générale, with -6.84%, followed by Vinci (-5.80%), Worldline (-5.67%), Crédit Agricole (-5.44%), Teleperformance (-4.65%), BNP (-4.23%) and BNP (-3.10%), among others.

Bayrou's cuts

In mid-July, the French Prime Minister announced a budget cuts plan in response to France's debt overhang. This four-year plan to clean up public finances is based primarily on reducing public spending across the board, with the sole exception of defense. Among the most notable measures are the elimination of 3,000 civil service jobs, a freeze on social benefits next year, and the elimination of two national holidays.

Bayrou wanted to convey the gravity of the moment by comparing the current situation in France with that ofGreece in 2010, when it had to be rescued"We must never forget the example of Greece," said the French prime minister.

In his appearance on Monday, Bayrou declined to discuss the measures presented in July, asserting that what needs to be discussed first is whether France has a problem with public debt, which is constantly growing and which he described as an "immediate danger." He asserted that the measures to be taken must be negotiated with social partners.

France, a critical situation

"We've grown accustomed to the deficit. Our country hasn't presented a balanced budget for more than fifty years," he lamented. Bayrou announced that the goal is to save €43.8 billion in next year's budget. France recorded a deficit of 5.8% of GDP last year, the highest in the eurozone and far from the 3% limit set by Brussels. With this plan, the goal is to reduce it to 4.6% in 2026 and reach 2.8% in 2029.

France has been struggling economically for years. It is, in fact, the eurozone country with the second-worst risk premium compared to Germany. As a reminder, a country's risk premium is understood as the additional interest cost paid on its public debt securities compared to those of Germany, which until now was considered the most stable economy in the eurozone and is used as a benchmark. Today, Spain's risk premium is at 60 points, Portugal's at 44, and Greece's at 72. France's is at 78 points, surpassed only by Italy (87), which has been carrying a large public debt for decades.

It is also significant to note the interest rate on France's 10-year bond, which stood at 3.5% this Tuesday, leaving behind the 3.53% it had reached during the first quarter, evidencing the loss of investor confidence. This indicator serves as a reference for other interest rates and as a key indicator of investor perceptions of the economic situation: the higher it is, the more profitable and secure the country represents. As for the Spanish bond for the same period, this Tuesday it is at 3.3%, and that of Greece at 3.44%, 0.12 points higher than a year ago.