French borrowing costs surge as prime minister resigns

Political Crisis in France - The unexpected resignation of Prime Minister Sebastien Lecornu has deepened the political crisis in France, marking the search for the fourth prime minister in less than a year [3][4][39] - Lecornu's resignation followed fierce criticism of his newly formed cabinet, which was perceived as favoring President Macron's Renaissance party [3][4][11] Market Reactions - The Cac 40 stock index fell sharply, closing down 1.4%, with banking stocks like BNP Paribas, Societe Generale, and Credit Agricole dropping between 5% to 7% [11][80][82] - French government borrowing costs surged, with the yield on 10-year bonds rising as much as 11 basis points to 3.61%, surpassing those of Italy, Greece, and Portugal [11][84][50] Economic Implications - The political instability is expected to complicate budget negotiations, with analysts warning that the fractured parliament makes it nearly impossible to pass a budget that reduces the fiscal deficit [2][77] - The difference between French and German bond yields has widened significantly, indicating a loss of confidence in the French economy [84][42] Future Outlook - Economists predict that the risk premium on French government bonds will continue to rise due to ongoing political uncertainty and high government borrowing costs, which are projected to exceed 5% of GDP [77][78] - There are speculations that President Macron may need to call for new elections if the political deadlock persists, which could further complicate the fiscal situation [46][78]