European markets are bleeding, and the culprits are as shocking as they are dangerous: France’s political chaos and Donald Trump’s unprecedented assault on the Federal Reserve.
On Tuesday, European shares nosedived, dragged down by France’s CAC 40 index, which plunged 1.4% amid fears that President François Bayrou’s minority government may collapse next month.
French banks, BNP Paribas and Société Générale were absolutely hammered, crashing 6.2% and 5.2%. Investors are fleeing French assets at lightning speed, and the entire European STOXX 600 index slid 0.7% as panic spread across the continent.
But Europe’s problems didn’t stop at Paris. Across the Atlantic, Donald Trump just detonated a political bombshell, firing Federal Reserve Governor Lisa Cook in a move that critics are calling illegal, authoritarian, and market-destabilizing.
This brazen attack on the Fed’s independence has Wall Street spooked, with global investors dumping riskier assets. One analyst bluntly told Reuters: “This is a direct assault on central bank credibility. The market is terrified.”
The French government is hanging by a thread. Prime Minister Bayrou faces a confidence vote on September 8, and with all major opposition parties refusing support, he looks doomed. His plan for sweeping budget cuts has triggered outrage, and investors now fear political paralysis at a time when France is already burdened with rising debt and weak growth.
If Bayrou falls, France could spiral into months of political deadlock, and given that France is the Eurozone’s second-largest economy, the fallout could make Italy’s chronic instability look like child’s play. For European investors, this is a nightmare scenario.
Meanwhile, in Washington, Trump’s reckless sacking of Lisa Cook has set a dangerous precedent. No U.S. president in modern history has dared to outright fire a sitting Fed governor. Trump’s justification, which are dubious claims of mortgage borrowing impropriety was met with immediate legal resistance. Cook hit back through her lawyer, declaring that “no cause exists under the law, and [Trump] has no authority” to remove her.
The message from Trump is clear: he wants to bend the Fed to his will. Investors, however, know the cost of political interference in monetary policy, hyperinflation, currency collapse, and market chaos. From Turkey to Argentina, history is full of lessons that Trump seems eager to ignore.
Markets thrive on stability. Right now, Europe has none. France is on the verge of a government collapse. The United States is flirting with authoritarian economic policy. And investors are voting with their feet, dumping European equities, French bonds, and U.S. assets in favor of safer havens.
If France implodes and Trump escalates his war on the Fed, we could be looking at a new wave of global financial turmoil. Some traders are even whispering about a “Eurozone mini-crisis” that could rival the chaos of 2011.
