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France’s credit rating was downgraded by Moody’s ratings agency, adding pressure on the just-appointed prime minister to rein in the country’s public finances.
The downgrade came just hours after French President Emmanuel Macron named centrist Francois Bayrou as his fourth prime minister this year, following the collapse of Michel Barnier’s administration. Barnier was toppled last week by left-wing and far-right lawmakers opposed to the debt-reduction push that he had hoped would bring under control spiraling fiscal deficits in the eurozone’s second-largest economy.
Moody’s cut its rating on France to Aa3 from Aa2, saying in a statement that the downgrade “reflects our view that the country’s public finances will be substantially weakened over the coming years.” France’s rating had already been lowered to equivalent levels by Standard & Poor’s and Fitch.
“Political fragmentation is more likely to impede meaningful fiscal consolidation” in France, Moody’s said in its statement. “There is now very low probability that the next government will sustainably reduce the size of fiscal deficits beyond next year,” it said.
“There is a risk of a durable increase in financing costs which would further weaken debt affordability,” according to the ratings agency. “This could create a negative feedback loop between higher deficits, a higher debt load and higher financing costs, against the backdrop of significant annual borrowing needs.”
Moody’s in late October downgraded the outlook on France to negative due to concerns over the country’s debt and deficit. The ratings agency cited the “increasing risk that France’s government will be unable to implement measures that would prevent sustained wider-than-expected budget deficits and a deterioration in debt affordability.”
