FILE PHOTO: French President Emmanuel Macron appears on screen as he makes a television address to the nation after Prime Minister Michel Barnier's government was toppled in a no confidence vote in parliament, in Paris, France, December 5, 2024. REUTERS/Christian Hartmann/File Photo
PARIS: Credit ratings agency Moody’s Ratings has unexpectedly downgraded France’s rating, adding pressure on the country’s new prime minister to corral divided lawmakers into backing his efforts to rein in the strained public finances.
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.
It comes hours after president Emmanuel Macron named veteran centrist politician and early ally Francois Bayrou last Friday as his fourth prime minister this year.
His predecessor Michel Barnier failed to pass a 2025 budget and was toppled earlier this month by left-wing and far-right lawmakers opposed to his 60bil or about US$63bil belt-tightening push that he had hoped would rein in France’s spiralling fiscal deficit.
The political crisis forced the outgoing government to propose emergency legislation last week to temporarily roll over 2024 spending limits and tax thresholds into next year until a more permanent 2025 budget can be passed.
“Looking ahead, there is now very low probability the next government will sustainably reduce the size of fiscal deficits beyond next year,” Moody’s said.
“As a result, we forecast that France’s public finances will be materially weaker over the next three years compared with our October 2024 baseline scenario,” it added.
Barnier had intended to cut the budget deficit next year to 5% of economic output from 6.1% this year with a 60bil package of spending cuts and tax hikes.
But left-wing and far-right lawmakers were opposed to the belt-tightening drive and voted a no confidence measure against Barnier’s government, bringing it down.
Bayrou, who has long warned about France’s weak public finances, said last Friday shortly after taking office that he faced a “Himalaya” of a challenge reining in the deficit.
Outgoing Finance Minister Antoine Armand said he took note of Moody’s decision, adding there was a will to reduce the deficit as indicated by the nomination of Bayrou. The political crisis put French stocks and debt under pressure, pushing the risk premium on French government bonds to their highest level over 12 years. — Reuters
