Eurozone meltdown warning as Michel Barnier’s ‘political Waterloo’ risks ‘chain reaction’

Michel Barnier’s “political Waterloo” may trigger a “chain reaction” across the financial markets which could send the euro into a downward spiral and pose a threat to the monetary union itself, financial experts have warned.

The French Prime Minister offered his resignation yesterday after deputies emphatically backed a motion of no-confidence in the National Assembly, with politicians on the left and far right uniting to ensure the defeat of the 73-year-old former EU Brexit chief negotiator.

Their decision – and the consequent collapse of his Government – means Emmanuel Macron must now select a replacement, with months of turmoil looming. The French President will address the nation this evening.

Gabriel McKeown, Head of Macroeconomics at Sad Rabbit Investments said: “Barnier’s political Waterloo could trigger a chain reaction across the markets.

“This instability and a looming budget crisis have put significant downward pressure on the euro and caused bond yields to spike.”

As the eurozone’s second-largest economy, the currency was facing its most serious challenge since the sovereign debt crisis as France descends into political chaos, Mr McKeown stressed.

He explained: “The euro has already sharply depreciated against the pound and shows no signs of abating, so the euro could test new lows in the coming days.

“A breach of the 0.82 level is not out of the question, potentially pushing the exchange rate towards 0.80 in the following weeks.”

Such an outcome would mark a significant milestone, representing a level not seen since the aftermath of the Brexit referendum, Mr McKeown pointed out.

Sterling has steadily risen again the euro in recent days, and at the end of trading yesterday, was valued at €1.21.

Prem Raja, Head of Trading Floor at Currencies 4 You commented: “Following a no-confidence vote, the French Government has now been dissolved.

“From a market perspective, this was widely expected and has not really affected the Euro so far, however the fact that both Germany and France are in political turmoil at the same time does not bode well for the single currency.”

Tony Redondo, founder at Cosmos Currency Exchange warned: “The French are experiencing a Gallic version of a Greek tragedy.

“Last week French bond yields already hit Greek cost levels and their widest margin against German bunds since 2012.”

Mr Redondo likewise anticipated the value of the euro to sink to levels not seen against the point since before the 2016 Brexit referendum.

The removal of Barnier following a no-confidence vote could see the euro sink lower, hitting levels not seen against the pound since before the Brexit vote of June 2016.”

David Belle, Founder and Trader at Fink Money said: “The French are well used to revolution and government change so this is no surprise, but from a market perspective it largely means the uncertainty has finished and could leave the euro on a firmer footing.

“Of course France is in breach of the excessive deficit procedure, but the bloc was due a rule change anyway now Germany is in an economic quagmire of its own.”

Speaking to Express.co.uk yesterday prior to the vote, French MEP Nicolas Bay, of the right-wing Identity Libertes party, said Mr Barnier had already failed, regardless of the outcome.

He added: “France is going through an institutional and democratic crisis to which there is only one obvious response: the introduction of proportional representation for the parliamentary elections and Macron’s resignation.”

Addressing deputies before the vote, a defiant Mr Barnier said: “I can tell you that it will remain an honour for me to have served France and the French with dignity.

“This no-confidence motion will make everything more serious and more difficult. That’s what I’m sure of.”