French Prime Minister Francois Bayrou called a confidence vote that could topple the country's minority government as soon as next month.
Three main opposition parties have said they would not back a confidence vote announced by the Prime Minister for 8 September over his plans for sweeping €44 billion budget cuts.
This has caused a sharp selloff of French Stocks and bonds due to the political uncertainty in the euro zone’s second biggest economy.
France’s blue-chip CAC40 index fell 2% to its lowest level in around three weeks after falling 1.6% late on Monday. Banking giants BNP Paribas and Societe Generale slid more than 6% each, while midcap stocks slid nearly 3%.
However, French government 10-year bond yields rose 3.53% to their highest point since March, before quickly stabilising to 3.50%
While analysts predicted a return in French political risk as the government tried to secure support for steps to improve its fiscal position, Monday’s developments came as a surprise.
Bayrou’s government could fall if he loses the confidence vote in the National Assembly. This would mean President Emmanuel Macron could name a new prime minister, ask Bayrou to remain head caretaker of the government or call a snap election.
