Worries about shift to the right: Stock markets fear Macron’s election poker

Prolonged political uncertainty in France led to significant losses in stock markets across Europe. According to the Financial Times, France’s stock market experienced its worst week since 2022. Germany’s leading index Dax and EuroStoxx50 each fell 1.3 percent on Friday.

Institutional investors feared France could be plunged into a financial crisis after new elections called by President Macron. The risk premium demanded by investors for French government bonds rose to its highest level in more than four years.

Analysts at PGIM Fixed Income said, “The outcome of the upcoming parliamentary elections in France will be more important for Europe than the just concluded European parliamentary elections. In the foreign exchange market, the euro fell to $1.0670, marking its lowest level since early May.

France’s creditworthiness at risk?

Prices of major French banks came under pressure in the stock market. Societe Generale, BNP Paribas and Crédit Agricole lost between four and 4.8 percent. An index of euro zone banks fell more than three percent.

Financial markets are watching France’s right-wing election campaign with concern. France’s leading index CAC40 fell 2.3 percent. The RN, currently leading in opinion polls, is calling for a lower retirement age and a protectionist economic policy in line with former US President Donald Trump’s “France first” motto.

A shift to a more expansionary fiscal policy in France – RN promises many expensive social measures but has not yet said how the additional spending will be financed – said Frédéric Carrier, an expert at RBC Wealth Management.

From the perspective of ratings agency S&P, political developments threaten France’s creditworthiness. After the European elections, in which the RN won a landslide victory, Macron ordered early parliamentary elections at short notice.

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Lagarde declined to comment

ECB President Christine Lagarde on Friday largely dodged questions about the recent stock market turmoil in France. Asked whether the European Central Bank (ECB) would help France with its bond-buying program, Lagarde said on Friday in Dubrovnik that she would not comment on domestic political situations.

“I would say it is the European Central Bank’s duty to carry out the mandate of the European Central Bank and keep inflation under control and bring it back to target.”

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