French PM Resigns Triggering CAC 40 2% Drop Amid Political Crisis

French Prime Minister Sébastien Lecornu resigned abruptly just 27 days after forming his cabinet, marking the shortest tenure in the history of France's modern Fifth Republic. This resignation intensified political uncertainty amid a fractured parliament struggling to approve a budget that reduces the fiscal deficit, leading to significant losses in France's CAC 40 index and a rise in French 10-year government bond yields to a 10-day high. The banking sector, including Societe Generale, BNP Paribas, and Credit Agricole, experienced sharp declines between 4% to 6%, contributing heavily to the market downturn. Economists note that if the government falls, France may operate under special law, maintaining spending near the 2025 framework with a deficit around 5.0-5.4% of GDP, while the risk premium on French government bonds is expected to widen. The euro also weakened against the dollar, reflecting investor concerns over France's fiscal and political stability. These developments come amid broader European market fluctuations and ongoing challenges in passing austerity measures necessary to address mounting public finances.