Moody’s downgrades France credit rating amid major political fragmentation
PARIS – Credit ratings agency Moody’s downgraded France’s rating on Friday, intensifying pressure on the country’s new prime minister amid a major political crisis and a growing fiscal deficit.
The downgrade, which came outside of Moody’s regular review schedule for France, brings its rating to “Aa3” from “Aa2” with a stable outlook for future moves and puts it in line with those from rival agencies Standard & Poor’s and Fitch.
This came hours after President Emmanuel Macron named centrist politician and early ally Francois Bayrou as his fourth prime minister this year.
His predecessor, Michel Barnier, failed to pass the 2025 budget and was ousted earlier this month by left-wing and far-right lawmakers who opposed his 60-billion-euro austerity plan, which he had hoped would curb France’s spiralling fiscal deficit.
The political crisis forced the outgoing government to propose emergency legislation this week to temporarily extend 2024 spending limits and tax thresholds into next year, pending the passage of a permanent 2025 budget.
“Political fragmentation is more likely to impede meaningful fiscal consolidation” in France, Moody’s said in its statement, adding that “there is now very low probability that the next government will sustainably reduce the size of fiscal deficits beyond next year.”
“As a result, we forecast that France’s public finances will be materially weaker over the next three years compared to our October 2024 baseline scenario,” the agency added.
The political instability in France put pressure on stocks and debt, driving the risk premium on French government bonds to its highest level in over 12 years at one point.
