Recent talk of a potential IMF bailout has spooked investors in French shares.
FRA40 – Daily Chart
The FRA40 index has been rejected by the 7,961.58 level, and the support below at 7,521 is key. A failure at the lower level could open up a move toward the April lows.
France is at risk of requiring a bailout from the International Monetary Fund (IMF) as its government remains on the brink of collapse, its finance minister has warned.
French long-term borrowing costs are at their highest level since 2011, amid concerns that the government may collapse for a second time within a year. That could leave the country unable to tackle a budget deficit, which is on course to hit 5.4% of GDP this year.
Finance minister Eric Lombard said that asking the IMF to intervene “is a risk that is in front of us” as France struggles with a ballooning national debt. France has never received a bailout from the IMF, but the collapse of its government would leave the country in a weak bargaining position, with a record national debt of € 3.3 trillion (£ 2.85 trillion).
Mr Lombard said: “It is a risk that we would like to avoid, and one that we should avoid, but I cannot tell you that this risk does not exist”.
Opposition parties have said they will vote against Prime Minister Francois Bayrou after he attempted to break the political deadlock over his proposed deep budget cuts with a confidence vote in his administration. The move would follow a failed no-confidence vote in December that saw Michel Barnier ousted as Prime Minister.
Mr Bayrou is expected to lose the confidence vote announced for September 8 over his plans to cut the budget deficit by 1.5% of GDP next year.
Investors should keep a close eye on the headlines in France and the UK, as both countries are struggling financially. Contagion fears could emerge over concerns that another European debt crisis may unfold.
