Paris: France’s financial markets have shown signs of relief after Prime Minister Sébastien Lecornu announced the suspension of a controversial pension reform until after the 2027 elections. The move, seen as an effort to stabilize domestic politics, has soothed investor nerves temporarily, but experts warn that the country’s underlying fiscal challenges remain unresolved.
The announcement immediately influenced market sentiment. The yield spread between French and German 10-year government bonds narrowed to about 78 basis points, down from nearly 90 last week, signaling reduced investor anxiety over France’s fiscal stability. Meanwhile, the French stock market reflected renewed confidence: the CAC 40 index climbed 2.6%, with luxury conglomerates such as LVMH and banking giants including Société Générale and BNP Paribas leading the gains. The euro also recovered slightly, reinforcing the perception of short-term stability in the financial landscape. Analysts noted that if Lecornu successfully navigates the upcoming no-confidence vote, investor confidence could strengthen further, potentially boosting both equities and the currency.
Despite the temporary relief, France’s fiscal outlook remains fragile. The independent fiscal watchdog, Haut Conseil des Finances Publiques, has criticized the 2026 budget, arguing that it relies on overly optimistic economic assumptions and potentially unattainable spending reductions. The budget aims to reduce the deficit from 5.4% of GDP to a range of 4.7%–5%, but analysts caution that political instability could make these targets difficult to achieve.
The suspension of the pension reform, while politically expedient, is expected to carry significant costs. Estimates suggest an additional €400 million in 2026 and €1.8 billion in 2027, placing further pressure on public finances. Experts warn that these added expenditures, coupled with ambitious deficit reduction targets, leave France vulnerable to future fiscal turbulence.
ECB President Christine Lagarde has expressed confidence in the broader eurozone’s financial stability, despite France’s internal challenges. She emphasized that the ECB is closely monitoring the situation but sees no immediate signs of disorder in the bond markets. Lagarde reassured that the central bank possesses the necessary tools to intervene effectively if financial instability emerges.
While the suspension of the pension reform has provided immediate market relief, France’s fiscal path remains uncertain. The government’s reliance on optimistic economic projections, coupled with additional costs from policy delays, could strain public finances in the coming years. Investors and policymakers alike will be watching political developments closely, particularly the outcome of the no-confidence vote and forthcoming budget negotiations, which will be critical in shaping France’s long-term fiscal trajectory.