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    Rabobank warns that a political hurdle in France jeopardizes fiscal objectives.

    by VT Markets
    /
    Nov 28, 2025
    The French government is facing challenges after the National Assembly missed the deadline of November 24 for the first reading of the 2026 draft budget. This delay threatens Finance Minister Lecornu’s goal of lowering the deficit from 5.4% in 2025 to 4.7% in 2026. Although Saturday’s setback is not critical, it complicates the government’s ability to meet its fiscal targets by the end of the year. The government might explore special procedures or use Article 49.3 to push the budget through, but this option has been largely dismissed due to potential political risks.

    Uncertain Fiscal Future

    The failure to pass the 2026 budget brings significant uncertainty in the coming weeks. We’re already seeing its impact on the bond market, with the spread between 10-year French OATs and German Bunds increasing to 72 basis points, up from about 50 basis points earlier this autumn. This domestic political issue is also influencing the Euro, especially as the European Central Bank indicates a pause in its rate changes. The EUR/USD pair is testing recent lows around 1.0450, prompting a need to consider strategies that take advantage of further currency weakness. Put options on the Euro or short positions against the dollar may be worth exploring. For equity traders, it’s essential to focus on potential risks for the CAC 40 index. This type of fiscal uncertainty can negatively affect banking and consumer-focused stocks, which make up a large portion of the index. We are seeing a notable increase in implied volatility in CAC 40 options, suggesting that buying put options could be a smart way to hedge or speculate on a decline.

    Rising Sovereign Risk

    The cost of protecting against French debt default is rising, reflected in the increasing prices for Credit Default Swaps. S&P Global has already given France’s ‘AA’ rating a negative outlook, and the budget deadlock may intensify worries about a downgrade in 2026. We recall how quickly concerns about sovereign risk escalated during the 2011-2012 period, so these early warning signs should be taken seriously. Create your live VT Markets account and start trading now.

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