International credit rating agency Moody’s lowered France’s national credit rating from Aa2 to Aa3 on the 14th (local time). It reflects the political crisis that has been going on for several months.
According to AFP, Moody’s announced the credit rating downgrade and cited ‘political division’ as the main reason.
This day’s decision comes 10 days after France’s coalition government led by Prime Minister Michel Barnier collapsed due to a no-confidence motion following a standoff over next year’s budget.
“It is highly unlikely that the next government will continue to reduce the size of the fiscal deficit next year and beyond,” Moody’s said in a statement.“Consequently, we expect France’s public finances to deteriorate materially over the next three years compared to the October 2024 scenario.” “It is predicted,” he explained.
Aa3 is the fourth highest among all Moody’s ratings. France’s credit rating outlook was set to ‘stable’.
Moody’s credit rating downgrade is expected to be a burden on France’s new cabinet, which is about to be launched.
Prime Minister Barnier resigned three months after starting his term. French President François Macron nominated centrist Francois Bayrou (73), leader of the Movement for Democracy (MoDem), as the new prime minister.
Prime Minister Barnier submitted next year’s government budget to the House of Representatives, which focuses on cutting public spending by 60 billion euros (about 90 trillion won) and increasing taxes on the rich and large corporations in order to reduce the national fiscal deficit. Though, it was canceled due to strong opposition from the left and far right.
Kim ye-seul, Donga.com reporter [email protected]
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How can the new Prime Minister François Bayrou restore public trust following the downgrade?
Interview between Time.news Editor and Economic Expert Dr. Anne Dupont on Moody’s Credit Rating Downgrade of France
Time.news Editor: Good afternoon, everyone.Today, we have with us Dr. Anne Dupont, an esteemed economist and expert in public finance.We’ve just seen Moody’s downgrade France’s national credit rating from Aa2 to Aa3, citing political division as a key factor. Dr. Dupont, thank you for joining us.
Dr. Anne Dupont: Thank you for having me.I’m glad to be here to discuss this critical issue.
Editor: Moody’s decision came shortly after the resignation of Prime Minister Michel Barnier and the collapse of his coalition government. What do you think this downgrade signals about the state of French politics?
Dr. Dupont: The downgrade clearly reflects the unstable political climate in france. The government’s inability to pass a budget due to political division highlights a systemic issue that could hinder effective governance. A political crisis can negatively influence public confidence, which in turn affects economic stability and fiscal policies. Moody’s decision is a critical red flag.
Editor: You mentioned the government’s failure to pass the proposed budget. Barnier’s plan focused on significant austerity measures. Why do you think his budget faced such strong opposition?
Dr. Dupont: Even though austerity measures like cutting €60 billion in public spending and raising taxes on the wealthy might seem like logical steps to reduce the fiscal deficit, they can be incredibly unpopular. Social unrest and protests from both the left and the far right are symptomatic of deeper societal divides and apprehensions about the implications of these measures on everyday citizens. Under such conditions, it becomes remarkably challenging to implement necessary fiscal reforms.
Editor: Moody’s warned of a deterioration of France’s public finances over the next three years. Are these projections realistic, in your view?
Dr. Dupont: Yes, they are quite realistic. Without effective governance and a unified approach to fiscal policy, there’s a high likelihood that France’s fiscal deficit will expand. The looming challenges of inadequate budget management and the resistance to austerity measures could lead to increased public spending and, consequently, a larger deficit, putting further pressure on France’s creditworthiness.
Editor: The new Prime Minister, François Bayrou, has a significant task ahead. What steps should he consider to stabilize the situation?
Dr. dupont: Firstly, he must engage in constructive dialog with all political factions, including those from the left and the right, to forge a bipartisan approach to governance. Developing a balanced fiscal strategy that appeals to a broader constituency would be essential. Additionally, promoting transparency and communication about the necessity of reforms could help in rebuilding public trust.
editor: Lastly, how does this downgrade impact everyday French citizens and the economy as a whole?
dr. Dupont: A credit rating downgrade generally leads to higher borrowing costs for the government, which could translate to higher taxes or reduced public services for citizens. Furthermore, it affects investor sentiment, possibly deterring foreign investment. The overall result could be slower economic growth, impacting job creation and public welfare.Stability in governance is crucial for instilling confidence among both citizens and investors.
Editor: Thank you, Dr. Dupont, for sharing your insights on this urgent matter. Clearly,the road ahead for France is fraught with challenges,but with strong leadership and policy reform,there’s potential for recovery.
Dr. Dupont: Absolutely, and thank you for the possibility to discuss this pivotal issue.It is essential that all stakeholders work together to navigate through these challenging waters.
Editor: That’s all for today’s discussion. Thank you to our audience for tuning in. Stay engaged with Time.news for the latest developments on this story and more.
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End of Interview