By Amanda Cooper and Samuel Indyk
LONDON (Reuters) -French assets slid along with the euro on Monday, after new Prime Minister Sebastien Lecornu resigned given mounting pressure from leftist lawmakers over his budget plans, thrusting the euro zone’s second-largest economy deeper into crisis.
Paris’ CAC 40 dropped 2%, making it by far the worst-performing index in Europe, as banking shares came under heavy fire, leaving BNP Paribas, Societe Generale and Credit Agricole down 4-5%.
The euro slid 0.7% on the day to $1.1665.
Lecornu’s swift resignation was unexpected and unprecedented and marked another major deepening of France’s political crisis.
“It’s concerning that the new cabinet only lasted 12 hours,” said Danske Bank analyst Kirstine Kundby-Nielsen.
“There seems to be no willingness in parliament for a budget to be passed, so I think yields higher, pressure on euro-dollar in the near term.”
French mid-cap stocks were hit hard, tumbling 3% and set for their largest one-day drop since April, while other European markets did not go unscathed either. The broader STOXX 600 dropped 0.4%, while Germany’s DAX fell 0.2%.
“It certainly makes people wary about European assets at this point because of the uncertainty and the spillover effects that go from France just being unable to find its way out of this malaise,” IG Group chief market analyst Chris Beauchamp said.
French bonds came under pressure, pushing yields on benchmark 10-year debt up 7.4 basis points to 3.585%. That left the premium investors demand to hold French debt, rather than triple-A rated German paper, at 86.58 bps, the most since January this year.
This spread hit a 2012 high of 90 bps in last November.
(Additional reporting by Samuel Indyk, Lucy Raitano and Shashwat Chauhan ; Editing by Andrew Cawthorne and Dhara Ranasinghe)
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