French banks lead shares amid political uncertainty; CAC 40 down 1.8 percent

Investing.com — Renewed political uncertainty in Paris on Tuesday pushed the CAC 40 index lower, while French banks negatively impacted European markets.

The benchmark index fell 1.8 percent, while financial stocks led the decline. Investors reacted to rising tensions after Prime Minister François Bayrou announced he would demand a vote of confidence on September 8 in an attempt to implement a tighter fiscal plan.

The move follows weeks of criticism from opposition parties of Bayrou's 43.8 billion euro package of cuts and revenue measures, which aims to reduce Bayrou's budget deficit to 4.6 percent of GDP by 2026, UBS analysts said in a note.

France recorded the highest budget deficit in the Eurozone last year, at 5.8% of GDP, and is still under the supervision of the EU.

UBS added that Bayrou risks defeat in the vote of confidence because his government does not have a majority in parliament, which could trigger either the appointment of a new prime minister by President Emmanuel Macron or early elections.

Markets have become cautious following the collapse of Michel Barnier's government last year as a result of the failure of Michel Barnier's government to pass the 2025 budget.

The event had caused a jump in French government bond spreads, and strategists warned that the current political impasse could lead to volatility again.

French 10-year bond yields are already well above German ones, reflecting investors' concerns about financial stability.

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