Markets

Violent street protests in France and Italy trigger stock and bond sell-off and send euro lower – as it happened

The Guardian2d ago

French bonds and stocks have sold off, putting fresh pressure on the euro.

Widespread and increasingly violent protests across France have piled pressure on the government, which is struggling with weak economic growth and ballooning debt. It has yet to pass its budget for next year.

The euro fell nearly 0.4% against the dollar to $1.1201. Investors sold French government bonds, pushing yields higher.

The yield on the 10-year bond rose as much as 8 basis points to 4.86% while Germany’s 10-year yield, the benchmark for the eurozone, was flat at 3.41%. The gap between them widened to 145 basis points, the highest in two years, although below the near 160bps hit in early October, when the French 10-year yield hit 4.99%, its. highest since 2002.

The ratings agency Moody’s is due to review France’s credit rating on Friday, which could result in a downgrade, which would pile further pressure on bonds.

French stocks slid, with the CAC 40 index down nearly 1.3%, while the broad European Stoxx 600 index lost 0.6%. Two of France’s biggest lenders, Société Générale and BNP Paribas , fell by 2.5% and 2.2% respectively.

The Milan borsa fell almost 1.3% too. Investors worry that the jump in French yields could spill over into other heavily indebted parts of the eurozone. The Italian 10-year bond yield rose 5.7bps to 4.53%. Italy has also seen protests over the weekend, over fuel and food shortages.

Bastien Aillet and Hadrien Camatte , economists at French bank Natixis CIB, said:

double quotation mark The French public deficit is projected to widen to 5.4% of GDP in 2026, up from 5.1% in 2025. Although the government initially targeted a 5% deficit, several factors are expected to weigh heavily on state revenues because of lower-than-expected domestic economic activity.

For 2027, the government has announced a €54bn savings plan aimed at bringing the deficit down to 5% (as opposed to an estimated 6.4% without these consolidation measures). The scale of this effort is unprecedented outside of post-crisis recovery periods. This raises significant credibility questions, particularly given that:

► The National Assembly remains deeply fragmented, leaving the government without a clear majority to pass these measures as originally designed;

► The government’s 2027 GDP growth assumption of 1% appears optimistic compared to our own forecast of 0.8%.

For these reasons, we expect a deficit closer to 5.5% in 2027. Should this situation materialise in 2027, it would represent the fifth consecutive year that the government has registered a deficit exceeding 5% (the last deficit below this threshold being in 2022 at 4.7%).

Consequently, whilst France has experienced the largest increase in its debt-to-GDP ratio since the Covid-19 pandemic, it is also expected to record the sharpest rise over the next two years. Moreover, this ratio is expected to breach the 120% GDP threshold by the end of next year, representing the second-highest public debt-to-GDP ratio among the major euro area economies.

Going forward, the primary areas of concern remain the trajectory of structural spending (particularly social expenditure) and the cost of debt servicing which are expected to increase substantially in a no policy change scenario. Driven by the current high-interest rate environment, debt service charges could reach 4% of GDP by the end of the decade, compared to 2.2% in 2025.

Source: The Guardian. Summary reproduced for informational purposes.

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