France's credit rating downgraded due to financial crisis risks

Moody's Ratings downgraded France’s credit grade, adding pressure on the new government to rein in a growing deficit after far-right leader Marine Le Pen ousted the former prime minister over a budget dispute, News.az reports citing foreign media.

In an unscheduled change, Moody’s lowered its assessment of the euro area’s second-biggest economy to Aa3 from Aa2, three levels below the maximum rating. France has already been cut to equivalent levels by Fitch and S&P.

The decision “reflects our view that the country’s public finances will be substantially weakened over the coming years,” Moody’s said in a statement. “There is now very low probability that the next government will sustainably reduce the size of fiscal deficits beyond next year.”

The rebuke came just hours after President Emmanuel Macron appointed François Bayrou as the country’s fourth premier in a year. Bayrou’s predecessor, Michel Barnier, was ousted in a confidence vote on 4 December after Le Pen’s National Rally lined up alongside left-wing parties to protest his plans for narrowing France’s budget deficit.

Outgoing Finance Minister Antoine Armand said the downgrade reflects the recent parliamentary developments and uncertainty around the budget.

“The nomination of François Bayrou as prime minister and the reaffirmed will to reduce the deficit will provide an explicit response,” Armand said in a social media post.

Political upheaval
To avoid a no-confidence vote from the left, Bayrou will have to pledge not to use the same constitutional manoeuvre that Barnier employed to push the budget through without a vote in the National Assembly, Marine Tondelier, the head of the Green Party, said on Saturday in an interview on France Inter radio.

The government’s collapse and the scrapping of France’s 2025 budget add to months of political upheaval that has already hammered business confidence, with the country’s economic outlook steadily deteriorating.

Barnier’s budget foresaw significant belt tightening by historical standards to bring the deficit to 5% of economic output from 6.1% this year.''

France has long been out of compliance with European Union rules that require member states’ debt to be below 60% of GDP and a deficit under 3%.

Bayrou will likely have to pare back those ambitions in order to get support from some of the lawmakers who toppled Barnier, but economists say the final outcome may even be no improvement.

Plans to repair public finances were already derailed this year by poor tax revenues as consumer spending and corporate profits disappointed. The task became more complicated after Macron called a snap parliamentary election in June in an attempt to rebound from defeat in the European elections.

News.Az