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PARIS: French shares ended Monday’s volatile session flat, as investors avoided large bets and mulled the outlook for the country’s political future, with the three-month-old government on the cusp of a breakup.

France’s CAC 40 closed muted after dropping over 1% earlier in the day after far-right and left-wing parties including Marine Le Pen’s National Rally said they would vote for a no-confidence motion against Prime Minister Michel Barnier.

The move came as Barnier said he would try to ram a social security bill through parliament without a vote as a last-minute concession to get the 2025 budget through a deeply divided parliament. Barnier’s budget has sought to implement more austere measures to reduce the country’s ballooning fiscal spending.

“Instability in a government isn’t really good news for anyone. It definitely adds risk to the market environment and we’re seeing that the CAC 40 has really been among the world’s laggards this year,” said Steve Sosnick, chief market analyst at Interactive Brokers.

More broadly, the pan-European STOXX 600 index rose 0.6%, and closed at a near one-month high, with Germany’s DAX settling at a record high as investors anticipated the euro’s 0.8% slide to benefit exporters listed on the index.

Since French President Emmanuel Macron called snap elections in early June, the CAC 40 has dropped nearly 10% and is the top decliner among top EU economies. On the flip side the DAX has gained over 7%, also aided by expectations of upcoming interest rate cuts by the European Central Bank.

On Monday, the risk-averse sentiment also spread to other areas of the market with spreads between French bonds and the German benchmark widening further.

French banks Credit Agricole and BNP Paribas closed lower by 0.9% and 1.2%, respectively.

On the other hand, export-focused French luxury names such as Hermes and LVMH added over 3% each benefiting from a weaker euro. The STOXX luxury index topped sectoral charts with a 2.3% rise.

Among others, Delivery Hero slid 10% as the German delivery company said its freelance riders at its Glovo unit in Spain would be hired as employees.

Paris- and Milan-listed Stellantis’ shares slid over 6% each after CEO Carlos Tavares’s resignation. The automobile index lost 0.4%.

Galp rose 5.4% after the Portuguese oil and gas group gave a positive update on the exploration and appraisal of its oil discovery in Namibia.

Airbus added 2% after sources said the aircraft maker’s deliveries accelerated sharply in November.

On the data front, a survey showed manufacturing activity fell sharply across Europe last month.

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