The French government is on the brink of toppling, with a political crisis triggering a double blow to stocks and bonds. The risk premium on government bonds has even exceeded that of Greece.

French Prime Minister Francois Beru has proposed a vote of confidence in the government, which could potentially be ousted as early as next month. This news has caused a wave of asset selling in France, as investors hedge against the increased risks of political uncertainty. The far-right party "National Rally," the left-wing party "Unbowed France," and the Green Party have all stated that they will oppose the government in the confidence vote on September 8th; the Socialist Party has also said it will not support the current government. If a majority of members of parliament vote against Beru, he will be forced to submit his resignation. Former French Prime Minister Michel Barnier's term lasted only 90 days, and if the French government were to fall again, it would highlight the fragility of President Emmanuel Macron's position. Macron's party and its allies have lost the majority in parliament for the 2024 elections, with Marine Le Pen's "National Rally" becoming the largest party in parliament and calling for new parliamentary elections. Beru told reporters at a press conference in Paris on Monday, "Yes, there is a risk, but the biggest risk is doing nothing," "If we lack courage, we cannot get out of the current predicament." As a result of the political risk, the yield on France's 10-year government bonds rose 9 basis points to 3.51%, leading declines in the global bond market. The spread between France and Germany's 10-year government bonds widened by 5 basis points to 75 basis points, reaching the highest level since April this year, compared to 65 basis points at the end of July. Currently, France's 10-year government bond yield ranks among the highest in the Eurozone, even surpassing countries like Greece and Portugal that were deeply embroiled in the European sovereign debt crisis. After Monday's fluctuations, France's 10-year government bond yield is only about 8 basis points lower than Italy's. Bloomberg economists Antonio Barroso and Jean Darb argue, "Opposition parties seem inclined to reject the vote of confidence motion. Unless they change their position, this government will inevitably fall." In the stock market, the "France Domestic Risk Sensitive Stock Basket" compiled by Barclays (covering companies heavily influenced by domestic factors such as government budgets) fell 2.9% on Monday. Beru's proposal for a vote of confidence is aimed at shoring up support for his administration his previous plan to cut spending by 44 billion euros (about $51 billion) and increase taxes has faced resistance, as he believes the plan is critical to avoiding a crisis in France's public finances. Additionally, he has proposed cancelling two public holidays in France, a move that has been mocked by the opposition. Beru said that Macron has agreed to allow parliament to reconvene early in order for the government to submit its plans and hold a confidence vote. "We will obviously vote no confidence in the government of Francois Beru," Le Pen wrote on social media, "Franco...