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French stocks tumbled on Friday as the prospect of a far-right government with the left as the main opposition rattled European financial markets, deepening a sell-off that has wiped almost €100bn off the value of Paris’s main index.
The Cac 40 is on course for its worst week since March 2022. It sank 2.4 per cent by early afternoon, led by a renewed sell-off in bank shares.
The index has plunged more than 6 per cent in the five trading sessions since Emmanuel Macron’s shock decision on Sunday to call snap parliamentary elections, in which the president’s own centrist alliance is at risk of a wipeout.
According to recent polling, run-off races in the second round would predominantly be fought between candidates fielded by a leftwing bloc and the far right, with Marine Le Pen’s Rassemblement National expected to make significant gains.
Investors have been fretting over the prospect of a new radical government with big spending plans. Finance minister Bruno Le Maire this week warned that a far-right victory could lead to a “debt crisis” akin to the UK’s gilt market turmoil under former prime minister Liz Truss.
RN’s policy of cutting valued added tax on energy, fuel and food alone would cost €24bn a year, Macron’s campaign said, citing economy ministry figures.
“They will be less friendly towards [the EU] and the things they are talking about from a policy perspective don’t suggest they will come in with a load of fiscal responsibility,” said James Athey, a fund manager at Marlborough Group. “Even a result which isn’t an outright RN win isn’t likely to be stable at all. And markets hate uncertainty, instability and volatility.”
Four leftwing parties on Thursday struck a unity pact for the election, which takes place on June 30 and July 7. On Friday they unveiled a joint programme that includes unfunded spending pledges worth tens of billions of euros.
The left’s uncosted programme would scrap Macron’s planned increased in the pension age to 64 and freeze the prices of food and energy.
The left would hike incomes taxes for the well paid and reintroduce the wealth tax.
“We will finance this programme by dipping into the pockets who can most afford it,” said Olivier Faure, socialist party leader.
The left’s programme also “rejects” EU budgetary rules, which required a deficit of less than 3 per cent of GDP.
New projections by French media based on European parliament election results suggest only about 40 of Macron’s MPs could qualify for the second round and only a handful from the centre right. Some pollsters question the methods used.
Ever more traditional polling projections based on voting intentions suggest the vast majority of MPs in the new assembly will be in favour of huge spending commitments.
Concerns about French markets “range from a stalling of the reform process, possible rating downgrades, to increasing concerns over talk of a break-up in the euro area”, said Mohit Kumar, chief economist for Europe at Jefferies.
Banks — which would be exposed to slowing economic growth and hold substantial government debt — have been among the worst-performing stocks. Crédit Agricole, BNP Paribas and Société Générale have dropped 12.2 per cent, 13.4 per cent and 16.5 per cent, respectively, since Monday.
Macron’s move has reverberated beyond the French equity market. The euro has fallen against the dollar, while the region-wide Stoxx 600 index is on track for its worst week since October last year, with German, Italian and Spanish stock indices all having lost ground. In marked contrast, Wall Street’s S&P 500 index has added 1.6 per cent this week.
“When the Americans wake up, they’re selling Europe and especially France, which is the weakest link right now,” said John Plassard, senior asset specialist at Mirabaud Group in Switzerland.
Barclays, which for months had been recommending clients have a higher than benchmark weighting in European equities relative to the US, scaled back its position on Wednesday, advising “caution on the region for now given the political situation in France”.
French government bonds have also been hit. The gap between benchmark French and German yields — a market barometer for the risk of holding France’s debt — rose to 0.77 percentage points on Friday, the highest level since 2017.
This article has been amended to correct the value lost by the French market
