There may not be panic, but there is a growing concern that finding a solution to the crisis is becoming increasingly difficult. Financial markets understandably reacted on Monday, October 6, to the third collapse of a French government in 10 months, confirming that political instability has now become a lasting feature of the European Union's second-largest economy.
Investors and economists have begun assessing various short-term scenarios. Some, such as Léo Barincou, senior economist at Oxford Economics, are anticipating a dissolution of the Assemblée Nationale and that "the 2025 budget will very likely be at least temporarily carried over to 2026," which would result in a budget deficit higher than this year's. That prospect has fueled mistrust toward French equities and government bonds.
On Monday, the CAC 40 index on the Paris Bourse dropped 1.36%, falling below the 8,000-point mark, which it had passed on October 2 for the first time since March. Among the biggest losers were banking stocks, including Société Générale (–4.2%), Crédit Agricole (–3.4%) and BNP Paribas (–3.2%). In the bond market, the yield on 10-year government bonds (OATs), which moves inversely to their price, rose to 3.57%, overtaking its Italian equivalent.
