French government collapses, what’s next?

Fall of Barnier government raises risks of political instability, fiscal slippage, rating downgrades, financial turbulence and economic underperformance.

We see room for the 10-year French government bond (OAT) spread against the Bund to widen to 100bp.

Persistent uncertainty supports our underweight stance on European stocks and bearish view on the EUR over the medium-term.