FLASH
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French stocks and the euro fell as France's borrowing costs rose on Monday as the government resigned just hours after being appointed, wiping millions of dollars from the stock market and stoking uncertainty over the eurozone's second-largest economy.
Prime Minister Sebastien Lecornu unexpectedly submitted his resignation to President Emmanuel Macron, hours after announcing the composition of his cabinet, making it the shortest-lived cabinet in modern French history.
The $3 trillion Paris CAC 40 index (.FCHI) fell more than 1.5%, making it the worst-performing index in Europe.
Shares of major lenders also fell, including BNP Paribas, Societe Generale (SOGN.PA), and Credit Agricole (CAGR.PA), down 4%-5%.
The euro, which has survived most of France's political turmoil over the past year, fell 0.7% on the day to trade at $1.1665.
"It is worrying that the new cabinet lasted only 12 hours," said Danske Bank analyst Kirstine Kundby-Nielsen.
According to her, there seems to be no willingness in Parliament to approve a budget, so I think yields will be higher, increasing pressure on the euro-dollar in the short term.
French mid-cap stocks were hit hard (.CACMD), falling 2.6% and setting themselves up for their biggest one-day drop since April, while other European markets were not left unscathed. The broader STOXX 600 index fell 0.3%, while Germany's DAX (.GDAXI) was slightly weaker.
France has the largest budget deficit in the eurozone, which is almost double the European Union's preferred limit of 3%.
Its problems take the shine off this year's rally in European stocks, which has been fueled by increased spending on security and infrastructure by countries like Germany.
France's long-term finances were already vulnerable and politics have become increasingly unstable since Macron's re-election in 2022, given the lack of any party or group holding a parliamentary majority.
French bond prices fell, pushing up 10-year debt yields by almost 9 basis points to around 3.59%.
That left investors' demand to hold French debt, rather than triple-A-rated German securities, at 86.54 basis points, the highest since January this year.
This spread reached its 2012 high of 90 basis points last November.
Investors are concerned about France's creditworthiness, which was worsened by a ratings downgrade last month.
On Monday, credit default swaps, a derivative that reflects the cost of insurance against a sovereign default, rose to 41 basis points, the highest level since April, from 38 basis points on Friday. /Adapted from Reuters/
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