French Prime Minister narrowly avoids vote of no confidence, European debt market regains confidence.

French Prime Minister Sbastien Lecornu, who was reappointed by French President Emmanuel Macron, survived in two significant no-confidence votes on Thursday after announcing the suspension of a highly controversial pension law to seek support from the National Assembly. Lecornu narrowly survived the two no-confidence votes, which undoubtedly served as a major positive catalyst for the recent yield increase in the Eurozone bond market, easing selling pressure on Eurozone bonds, particularly French government bonds, and providing a positive impetus for European and global financial markets. The latest statistics show that the first motion proposed by the far-left party "Unbowed France" received only 271 votes from lawmakers, falling short of the 289 votes required to force the Prime Minister to resign. The second motion submitted by the far-right party "National Rally" received 144 votes. The spread of the French-German 10-year bond yield, a key market risk measure, continued to narrow after the news, reaching 78 basis points, indicating sustained buying interest in French government bonds and a significant improvement in selling sentiment. Last week, this spread once exceeded 89 basis points. The French benchmark stock index, the CAC 40, also edged higher, rising by 0.8%, outperforming other European stock indices. Key Socialist Party lawmakers in the French Parliament stated that they would support the current government led by Lecornu after he promised to suspend a law gradually raising the minimum retirement age from 62 to 64 starting in 2023. The survival of Lecornu's premiership has brought significant relief to a French political crisis that nearly triggered early elections this week and left the country without a plan to address its massive and bloated budget deficit. Avoiding another government collapse has also reassured European markets and global investors, significantly reducing borrowing costs in the French market. However, the suspension of the pension law execution comes at a significant political cost for current French President Emmanuel Macron, as this reform was a major symbol of his pro-business economic policy. According to government estimates, this move will also bring significant financial costs: around 400 million (US$465 million) next year and around 1.8 billion by 2027. The Socialist Party is crucial to the survival of this government - no party that might have considered a vote of no confidence reached the majority of 289 seats A "hung parliament" is still seriously affecting the French political landscape The path for pension and budget reform remains unclear, as Lecornu has publicly stated that he will not use the constitutional provision known as Article 49.3 to bypass parliamentary votes, instead seeking to give more legislative control to lawmakers to ease partisan tensions. This suggests that there may be unpredictable shifts in the dynamics within the National Assembly, as the minority government has relied on this tool to block more radical proposals from lawmakers. With France currently in a state of a "hung parliament + minority government," political negotiation costs are high, legislative and budget uncertainties are high, and instability has significantly increased. Several no-confidence motions this year, the suspension of pension reform to gain support, all underline this serious test. The sudden 2024 elections for the National Assembly resulted in a parliamentary map with no camp holding a majority (the left-wing New People's Front taking the lead, followed by the centrist ruling party, and the National Rally third), leading to a long-term situation of a "hung parliament" in France. Since becoming Prime Minister in 2025, Lecornu has faced several no-confidence votes. His government has promised to suspend the pension law raising the retirement age from 2023 as a trade-off to avoid a collapse by some left-wing and moderate factions, and he has now survived two no-confidence votes this week. However, this is only a temporary political "band-aid" and has not yet formed a stable majority. Lecornu has stated that he will no longer use the fast track of Article 49.3 of the constitution to bypass votes, effectively returning more legislative dominance to the parliament. This means that negotiating a budget and subsequent laws in a fragmented parliament will be difficult, as political operations are more likely to be blocked. Socialist members have already opposed measures to cut spending, including freezing welfare and pension payments, and have warned that their decision on Thursday to not condemn Lecornu does not mean they have given the Prime Minister a 'blank check'. "We have to see what is written in the budget; we did not promise to vote in favor," the Socialist Party's parliamentary group chairman Boris Vallaud said on Franceinfo radio on Wednesday. Speaking in the National Assembly on Thursday, Socialist lawmaker Laurent Baumel stated that the party's decision not to support the current motion does not mean that the group will do so in the future. National Assembly Speaker Yael Braun-Pivet said that crossing the threshold of the no-confidence vote means that parliament can start renegotiating the budget. "We are moving step by step forward," she told French media on Thursday. "We are advancing policy work in a logic of compromise, discussion, and dialogue." The temporarily calmed Eurozone bond market Since the appearance of the "hung parliament" in French politics in 2024, investors' sentiment towards French government bonds and Eurozone bonds has been consistently bleak, with selling dominating most of the time. In recent months, there have been rare occurrences such as the French-Italian 10-year yield parity and a sharp widening of the French bond spread, indicating a broader repricing of sovereign risk in the Eurozone by investors. As the Eurozone's second largest economy, France's government bond market has a much greater impact on the European and global economy compared to the "PIIGS" that ignited the Eurozone crisis fourteen years ago (Portugal, Italy, Ireland, Greece, and Spain). More and more investment institutions are concerned that if French government bonds continue to be heavily sold off, the spillover effect could trigger a new round of global financial market shocks, leading to Euro devaluation crisis and Eurozone debt crisis. Investment institutions on Wall Street view the passage of these votes as a short-term easing window for trading-level spread convergence rather than a trend reversal. Following the passing of the no-confidence vote and the government's concessions on pension reform, French borrowing costs have temporarily fallen, and investor sentiment towards Eurozone bonds has significantly improved. However, financial market investors will continue to closely monitor French budget negotiations and sovereign debt rating risks as they pave the way for future investment decisions in the Eurozone bond market. (Note: Translation may not be perfect due to the complexity of the text and variations in sentence structure in different languages)