The Paris stock market tumbled, shares in French banks sank, and the country’s borrowing costs rose on Tuesday as investors fretted over a political crisis that could topple the minority government.

Embattled Prime Minister Francois Bayrou stunned France on Monday when he called a confidence vote, which will be held on September 8, over a budget battle with opposition parties.

The CAC 40 index of French blue-chip stocks was down around two per cent in morning deals on Tuesday.

Shares in BNP Paribas sank 6.8 per cent while rival Societe Generale shed more than seven per cent as French banks hold large amounts of French government debt.

In a sign of waning investor confidence in France’s debt, the yield on the French 10-year sovereign bond rose.

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Bank shares “are suffering because markets are betting on an imminent downgrade of French debt by the rating agencies”, Christopher Dembik, investment adviser at Pictet Asset Management, told AFP.

Opposition parties have rejected Bayrou’s 44-billion-euro ($51-billion) budget cut plan with measures that include reducing the number of national holidays.

AFP