French Lecornu’s Resignation Casts Its Repercussions on Euro, European Economy

In a sudden political shock that cast heavy shadows over global financial markets, French Prime Minister Sébastien Lecornu submitted his resignation less than a month after assuming office, and French President Emmanuel Macron announced his acceptance of the resignation, triggering a wave of economic disruptions in the second-largest economy in the European Union. This resignation, which came just 27 days after his appointment, reflects the depth of the current political deadlock in France and raises questions about the future of financial stability in the Eurozone. With a sharp decline in the euro’s value and rising borrowing costs, this event appears not merely as an internal crisis, but as a warning for a European economy facing escalating challenges.

Background of the Resignation: From Swift Appointment to Dramatic Fall

The story began in late September last year, when Macron appointed Lecornu as Prime Minister in an attempt to end a political crisis stemming from inconclusive parliamentary elections. Lecornu, considered a close ally of Macron, was seen as a transitional choice to form a government capable of handling the controversial 2025 budget. However, he quickly faced strong parliamentary rejection, particularly from the left, which threatened to submit a no-confidence motion. In a dramatic move, Lecornu announced his resignation on Monday, October 6, making him the fourth prime minister to leave office during Macron’s term and plunging the country into new political chaos.

It is worth noting that this resignation was not just an ordinary political event; rather, it reflects deep divisions in the French parliament, where the leftist alliance and the far-right control the seats, hindering any progress in negotiations. Experts see this as a “credibility crisis” for Macron himself, who now faces tough choices such as dissolving parliament or calling for early elections, which could exacerbate social tensions in a country already suffering from protests and inflation.

Economic Repercussions on France: Stock Decline and Rising Costs

The resignation led to an immediate reaction in French markets, with the CAC 40 index dropping by up to 2% in Monday’s trading session, wiping out millions of euros from the value of major companies like BNP Paribas, which lost 4% of its value. Yields on French 10-year government bonds rose by about 11 basis points, reaching 3.59%, meaning an increase in borrowing costs for the government and companies. This rise reflects investors’ fears of the inability to pass a stable budget, especially with a fiscal deficit approaching 6% of gross domestic product.

In a broader context, economists fear that this deadlock could delay necessary reforms, such as cutting public spending and reforming the pension system, potentially exposing France to sanctions from the European Union for exceeding deficit limits. French banks, which form the backbone of the economy, are facing additional pressures as investors shift toward safer assets like German bonds, widening the gap between French and German bond yields—a classic indicator of political risks.

Impact on the Broader European Economy: The Euro Under Pressure

The repercussions were not limited to France; they extended to the euro, which fell by 0.7% against the US dollar to its lowest level since September 25 at 1.1665 dollars, while also declining by 0.6% against the dollar and 0.3% against the British pound. This drop reflects broader concerns about instability in the Eurozone, where France is a backbone of the continental economy. With capital outflows from the euro toward safe assets, experts warn that this could hinder the growth of the European Union as a whole, especially amid challenges like inflation and economic stagnation in Germany.

Observers believe this crisis could be a “global warning” that political crises may threaten major economies, with French stability directly linked to the euro’s performance. For example, short-term borrowing costs in the Eurozone have risen, pressuring central banks to consider tighter monetary policies. Moreover, political deadlock could affect confidence in the European Union, especially with upcoming discussions on the joint European budget approaching.

The Future Between Risks and Opportunities

With increasing talk of early elections or forming a transitional government, the question remains: Will France be able to overcome this hurdle? Economists warn that continued deadlock could lead to deeper recession, but others see it as an opportunity for radical reforms. In the end, this crisis reveals the fragility of European economies in the face of political disruptions, leaving investors watching the next steps with intense anxiety. It is a story that has not yet ended, and its repercussions may shape the continent’s future for years to come.

As for Macron’s future plans, it appears he is betting on conducting emergency negotiations led by Lecornu himself within 48 hours to formulate a working equation that ensures stability, with options including appointing a new prime minister or calling for parliamentary elections, without considering his own resignation due to constitutional two-term limits, in an attempt to salvage Macron’s credibility as an international leader.

However, this comes amid a structural German economic crisis ravaging the traditional primary engine of the Eurozone economy, where gross domestic product is expected to contract by 0.2% for the third consecutive year due to rising energy costs, declining exports, and the bankruptcy of thousands of companies, leading to the loss of hundreds of thousands of jobs, which deepens pressures on the euro and places the European Union before a shared challenge threatening to spread recession across the continent.