The political risk premium has opened again! The presidential candidates clashed head-on in fiscal lines, and the stock prices of the three major French banks fell collectively

The Zhitong Finance App learned that French political risk is being transformed from a tail-end disturbance overlooked by the market into a real risk premium for European assets. After Macron held early parliamentary elections, the suspended parliament, the rise of the extreme right, government changes, and budget impasse continued. France's public debt ratio had risen to more than 116% of GDP, fiscal deficit of more than 5%, and the 10-year French treasury bond yield once exceeded 4.13%. This uncertainty in France's domestic politics recently hit the country's bank stocks once again. The stock prices of BNP Paribas and Crédit Agricole both fell by 4.4%, and Société Générale once fell by 4%, and drove the Stoke Europe 600 Index lower.

Wall Street financial giant Goldman Sachs also previously warned that France's rising populist fiscal path could further worsen France's debt. As presidential candidates in 2027 put forward completely different propositions on spending, debt, and EU policy, Bank of France stocks once again became the most sensitive risk agent — the real threat was not its huge French treasury holdings, but the secondary transmission of rising sovereign risk premiums to financing costs, credit demand, and asset quality.

The core reason for the decline in Bank of France stocks is undoubtedly that market concerns about political instability resurfaced before a critical debate on Thursday; presidential candidates are expected to explain their respective ideas about the country's future during this debate.

It is expected that several popular candidates for the French president will outline a very different development path for the Eurozone's second-largest economy when presenting their policies at an event for business leaders on Thursday evening. Political and economic growth uncertainty about who will succeed Emmanuel Macron next year, and what this means for France's public finances, which are already under tremendous pressure, has dragged down the country's prospects.

Since the centrist Macron, who advocated a pro-business policy, decided to hold early elections more than two years ago, France has faced political turmoil, and the country's bank stocks have often been the hardest hit sector. This is a key reason why the French banking sector's stock price performance generally lags behind rivals in other parts of Europe.

Unlike Italian or Spanish banks, which were once at the center of Europe's sovereign debt crisis, commercial banks in France hold significantly less domestic government debt, with more than half of French treasury bond assets held by international investors. Some analysts said that the real risk is not the Bank of France's exposure to government bonds, but rather second-order effects such as rising refinancing costs and the economic slowdown caused by the growing confrontation between the centrist and far-right economic positions led by Macron.