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Rating agency Moody’s has cut France’s credit rating to negative for the third time in two weeks. The reason was the deterioration of public finances and political instability in the country.
Moody’s analysts said: “The decision highlights the growing risk that the French government will be unable to take the necessary steps to prevent a deeper-than-expected budget deficit.” The agency emphasizes that the current situation is worse than predicted and contrasts sharply with the actions of other countries with similar ratings, which, on the contrary, are strengthening their finances.
Day.Az reports this with reference to the Indian newspaper Business Standard.
The news comes just two weeks after a negative outlook from Fitch and one week after a downgrade from Scope Ratings. S&P’s next estimate is scheduled for November 29; this agency already downgraded France’s rating at the beginning of the year.
France’s financial situation requires special attention, especially in light of President Emmanuel Macron’s repeated attempts to reduce the budget deficit, which have failed. The situation is exacerbated by political uncertainty following snap elections in June that created a minority government at risk of being voted out by parliament.
Moody’s emphasizes that “the country’s political and institutional environment creates additional risks to the credit profile and is not conducive to the development of effective measures needed to improve the fiscal balance.” As a result, financial management has become less efficient than previously thought.
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Recent political turmoil has caused investor interest in French assets to decline sharply, with the 10-year bond premium rising/fluctuating to more than 80 basis points over Germany, up from less than 50 at the start of the year.
In an effort to improve the negative trend, Prime Minister Michel Barnier’s government presented a draft budget for 2025 that includes 60 billion euros in spending cuts and tax increases. The goal is to reduce the deficit from 6.1% to 5%. However, as Moody’s points out, “achieving this goal is unlikely due to the significant fiscal consolidation efforts it would require.”
The agency also warned of the possibility of further downgrades if the country fails to present “a medium-term fiscal strategy that is credible and effectively implemented.”
Some criticism was also leveled by France’s High Council of Public Finance (HCFP), which assessed the proposed 2025 budget as fragile given planned cost-cutting measures.
French Economy Minister Antoine Armand noted that the situation requires urgent intervention: “We did not wait for a negative forecast to take the necessary measures.”
Political instability also poses a serious risk to the country’s financial situation. Without a majority to approve the budget, Barnier may have to invoke Article 49.3 of the constitution, raising the risk of a no-confidence vote. An attempt by the leftist New Popular Front to dismiss the government recently failed, but if the far-right bloc led by Marine Le Pen supports the initiative, the situation may change.
Thus, Moody’s stated that “the current political situation in France is unprecedented, which creates additional risks in achieving sustainable reduction of the budget deficit.”