Stock markets in France and Germany both fell 2pc today amid rising fears over the political direction of Europe and the possible election of Marine Le Pen.
The Cac 40, representing France’s biggest listed companies, and the Dax, representing Germany’s, fell by the most since July last year.
Chris Beauchamp, chief market analyst at IG Group, said: “It has been a week to forget for Europe.
“Snap French elections have sent investors scurrying from European stocks, just as those markets began to hit their stride after a decade and more of underperformance versus the US.
“Compared to the prospect of hard-right members sitting in the National Assembly, the UK seems an island of stability, though the FTSE 100 and 250 have not been able to escape the general risk-off move today.”
The risk of a populist government in France is also fuelling a spike in the yields of government bonds.
The yield on France’s 10-year bonds jumped to 3.18pc today, up from 3.15pc this morning and 3.10pc at the start of the week.
The spread between French bond yields and German yields is growing and analysts are predicting that yields could jump by the end of the month – with Germany debt seen as increasingly safer. German 10-year bonds are currently 2.52pc.
Chris Attfield, a European rates strategist at HSBC, told Bloomberg: “A victory for Marine Le Pen’s National Rally could lead to market concerns around fiscal indiscipline and a stand-off with the European Commission”, with markets concerned about the risk of further credit rating downgrades.
S&P Global Ratings cut France’s credit score last month.
Bruno Le Maire, the French finance minister, warned this week: “If the National Rally goes ahead with its programme … a debt crisis is possible in France, a ‘Liz Truss’ scenario is possible.”
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