European stocks drop as France fiscal, election fears mount

European stocks suffered their worst session in a month on Thursday as France's deepening political and fiscal uncertainty rattled investors ahead of the first presidential debate of the 2027 campaign. The CAC 40 fell 1.7% to a one-month low, dragging the pan-European STOXX 600 down 0.7% to 651.85 points.devdiscourse+1

French lenders led the selloff. BNP Paribas, Societe Generale Société Générale S.A., and Credit Agricole Crédit Agricole S.A. each fell between 4% and 5%, making French stocks the five biggest laggards on the regional index. The declines came as presidential candidates gathered at the annual Medef business federation conference to present their economic platforms.reuters+1

Bond Market Anxiety

The premium investors demand to hold French 10-year bonds over triple-A rated Germany has widened for three straight months, reaching approximately 88 basis points — the highest since late 2024. French bond yields have now surpassed Italy's despite Rome carrying a heavier debt burden, a reversal that ING analysts called a "high uncertainty premium".think.ing+1

"I wouldn't be surprised to see those spreads going to 100 bps, and even from 100 basis points, there's space for them to widen further," said Kevin Thozet of Carmignac, which manages roughly €44 billion.reuters

The Telegraph reported that France's 10-year yield hit 4.14% last week, its highest since 2008. Credit rating agency Fitch is scheduled to review France's A+ rating on Friday, having downgraded it a year ago.telegraph+2

Election Uncertainty Compounds Fiscal Woes

The market turbulence reflects growing alarm over what lies ahead. A Harris Toluna poll this week showed that in four out of five scenarios, the April–May presidential election would produce a runoff between far-right leader Marine Le Pen and hard-left candidate Jean-Luc Mélenchon — neither of whom has proposed conventional fiscal consolidation.reuters

Mélenchon has revived a call to cancel roughly €600 billion in debt held by the Banque de France, while Le Pen has advocated lowering the retirement age to 60 for some workers. France's Economy Minister Roland Lescure called the debt cancellation proposal "absolute nonsense," warning it would trigger a financial crisis.indexbox+2

"There's nobody coming in on a policy that we need to fix the budget deficit, we need to bring the debt down," said David Zahn, head of European fixed income at Franklin Templeton.reuters

Prime Minister Sebastien Lecornu's minority government must submit a 2027 budget bill to parliament by October 6, promising "big savings measures" while navigating a hung legislature that has already toppled two predecessors over failed budget negotiations. With public debt exceeding 116% of GDP and the deficit at 5.1% last year, fund manager James Athey of Marlborough Group warned that a Le Pen–Mélenchon runoff "would be like a bomb going off in French assets".telegraph+2