Political turmoil in France puts markets on edge

The political destabilisation in France, with the no-confidence vote against the Barnier government, was the focus of much attention on the markets this week. The 10-year OAT-Bund spread reached 88bp, its highest level since 2012, before falling back to 75bp. The next few days will therefore be decisive, as the French spread is pricing in a somewhat optimistic bias on a draft 2025 budget in line with the Stability Plan approved by the European Commission on 26 November. Furthermore, monetary policy meetings will be high on the agenda, with the ECB meeting scheduled for next Thursday. A 25bp cut is expected in response to the growing risk of a slowdown in economic activity in the eurozone.