Core Viewpoint - The French government led by Prime Minister François Bayrou is facing increasing opposition, with three major opposition parties indicating they will vote against a confidence motion, potentially leading to the government's downfall as early as next month [1][3]. Political Situation - The political crisis has caused market volatility, with the French CAC 40 index dropping over 2% for two consecutive days, and the spread between French and German 10-year bond yields nearing its highest point since April, reflecting renewed investor concerns about France's fiscal situation [1][4]. - President Macron is in a difficult position with limited effective solutions, including appointing a new prime minister or dissolving parliament, both of which carry significant risks [3][4]. Government's Fiscal Plan - The government initiated a confidence vote to gain parliamentary support for a fiscal plan that includes €44 billion (approximately $51 billion) in spending cuts and tax increases, which Bayrou believes is crucial to avoid a fiscal crisis [4][6]. - The proposed plan also includes controversial measures such as the cancellation of two public holidays, which has faced strong opposition [4]. Economic Context - Unlike other Eurozone countries, France's public finance recovery has been slow, with the National Audit Office criticizing the government for being overly optimistic about tax revenues and economic growth while failing to control rising expenditures [6]. - France's debt interest payments are projected to exceed €66 billion this year, surpassing spending in other sectors like education, and are expected to rise to €75 billion by 2026 [6]. Market Reaction - The yield on France's 10-year government bonds has reached the highest level in the Eurozone, even surpassing countries like Greece and Portugal, indicating a significant increase in borrowing costs [8]. - The CAC 40 index has declined over 4% since Macron's unexpected announcement of early parliamentary elections last June, contrasting with a 6% increase in the broader European Stoxx 600 index during the same period [9].

Core Viewpoint - The French Prime Minister François Bérou's proposal for a confidence vote amid increasing political uncertainty has triggered a sell-off in French assets, highlighting the fragility of President Emmanuel Macron's position as his party has lost its parliamentary majority [1][2]. Political Landscape - The far-right National Rally, left-wing France Unbowed, and the Green Party have all stated their opposition to the government in the upcoming confidence vote on September 8, while the Socialist Party will not support the current government [1][2]. - If a majority of lawmakers vote against Bérou, he will be forced to submit his government's resignation, which would further emphasize Macron's weakened status [1][3]. Economic Impact - Following the political turmoil, the yield on French 10-year government bonds rose by 9 basis points to 3.51%, leading the global bond market decline, with the spread between French and German 10-year bonds widening to 75 basis points, the highest level since April [1][2]. - The French 10-year bond yield is now among the highest in the Eurozone, surpassing countries like Greece and Portugal, and is only about 8 basis points lower than Italy [2]. Government Measures - Bérou's proposal for the confidence vote aims to solidify support for his administration, especially after facing resistance to a €44 billion (approximately $51 billion) spending cut and tax increase plan, which he deems crucial to prevent a fiscal crisis [2][3]. - He has also suggested the cancellation of two public holidays, which has been met with ridicule from opposition parties [2]. Public Sentiment - Bérou's approval ratings have plummeted to the lowest levels seen during Macron's presidency, indicating a significant disconnect with public sentiment [4]. - There are concerns that ongoing political disputes could lead to street protests, with calls for a "total lockdown" on September 10 gaining traction among various political groups [4].