French borrowing costs spiked and the euro fell yesterday as the Paris government teetered on the brink of collapse and bleak figures revealed a further downturn for Europe’s manufacturing sector.
The market turbulence came as Right-wing and Left-wing parties said they would back a no-confidence motion against prime minister Michel Barnier in the coming days.
Barnier made a dramatic appeal to French MPs urging them not to back the move –which would be the first time a French government has been brought down by a no-confidence vote since 1962.
‘We are at a moment of truth,’ he said. ‘The French will not forgive us for putting the interests of individuals before the future of the country.’
Yields on French ten-year bonds – the return demanded by investors for lending to the government – spiked, briefly overtaking those issued by Greece.
The narrowing of the gap between the two countries’ borrowing costs illustrates how, while Greece has fought back from its chaotic debt crisis more than a decade ago, France – Europe’s second biggest economy – has sunk into the mire.
Under fire: French Right-wing and Left-wing parties said they would back a no-confidence motion against prime minister Michel Barnier (pictured) in the coming days
At the same time, the gap between French bonds and those issued by Germany has increased.
That ‘spread’ – a gauge of the premium charged by investors for holding France’s debt – widened to 0.9 percentage points last week, the highest since 2012, and rose close to that level again yesterday.
The euro, meanwhile, dipped below $1.05 against the US dollar, closing in on a two-year low.
Sterling surged close to €1.21 versus the euro – in a boost for British travellers heading to the continent over Christmas.
France has been pushed into political turmoil after snap elections earlier this year that gave no bloc a parliamentary majority.
That has left Barnier struggling to pass a budget bill that sets out £50billion worth of tax hikes and spending cuts as he seeks to repair the country’s debt-laden public finances.
The lack of support saw the prime minister say he would ram the bill through without a vote.
That led National Rally leader Marine Le Pen to say she would put forward a no-confidence motion, with the Left-wing parties expected to do the same.
It came as closely-watched purchasing managers’ index (PMI) showed the downturn in the eurozone’s manufacturing sector deepened last month.
The PMI index, compiled by S&P Global and Hamburg Commercial Bank, sank
from 46 in October to 45.2 in November – on a measure where the 50-mark separates growth from contraction.
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