France’s Confidence Vote: What’s Next? And How Could the Equity Markets React?

As it looks almost certain, tomorrow French Prime Minister François Bayrou’s government will fall, putting the country into another semi-crisis, politically, with the far-leaning Rassemblement National party looking as the main beneficiary should a snap election be called.

The party has some momentum: as Le Monde wrote this morning, ‘[i[ts leaders have only had to exploit the weaknesses and resignations of those who claimed to oppose them to thrive.’ French business is largely supportive of the RN, as Jordan Bardella has promised ‘tax cuts and regulatory relief.’

Barring the vote, President Macron will have to appoint a new prime minister – which has no time limit – and he looks likely to try strike a deal with the Socialists to garner support for a new regime.

Names making the list of a new head of government include: Sébastien Lecornu, the Minister of the Armed Forces, Justice Minister Gérald Darmanin, Labor and Health Minister Catherine Vautrin and Economy Minister Éric Lombard.

Complicating matters, protests are expected by the Bloquons Tout, Fitch reviews France’s credit rating, and trade unions are expected to strike.

All of this points to some elevated levels of political risk. Our political risk ratings on France have been declining (more risk) since the spring months.

We spoke last week about positioning on French bonds. Our clients and friends also know there is a solid literature using our ICRG risk data that draws the connection between political risk and equity market returns.

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CHRISTOPHER MCKEE, PHD CHIEF EXECUTIVE

Christopher McKee is PRS’ CEO and Owner. An international political economist, global investor, entrepreneur, and author, Chris received his PhD from Queen’s University (Canada) and has been involved in the field of geopolitical risk, limited recourse financing, and private sector development for the past 25 years.