Moody’s has dealt a blow to France by unexpectedly downgrading its credit rating to “Aa3,” citing dim prospects for controlling the nation’s ballooning fiscal deficit.
This downgrade, announced outside the agency’s usual review schedule, coincides with the political turmoil engulfing the French government. The move puts France’s rating on par with Standard & Poor’s and Fitch and reflects growing concerns about its financial stability.
On the same day, President Emmanuel Macron appointed François Bayrou as the country’s fourth prime minister in less than a year, following Michel Barnier’s ousting. Barnier failed to secure parliamentary approval for his austerity-driven 2025 budget, which aimed to slash €60 billion through spending cuts and tax hikes. Opposition from both left- and right-wing lawmakers led to a no-confidence vote, toppling his government and deepening the financial crisis.
With the 2025 budget in limbo, emergency legislation was introduced to roll over 2024’s spending limits and tax thresholds temporarily. Moody’s, however, painted a bleak picture, stating, “There is now a very low probability that the next government will sustainably reduce the size of fiscal deficits beyond next year.” The agency expects France’s public finances to deteriorate further over the next three years.
Bayrou, a veteran centrist and long-time critic of France’s fiscal mismanagement, described the task ahead as a “Himalaya” of challenges. Financial markets responded with alarm, as French bonds faced their steepest risk premium in over a decade. Outgoing Finance Minister Antoine Armand acknowledged Moody’s downgrade and emphasized a commitment to deficit reduction under Bayrou’s leadership.
As political deadlock persists, critics argue that Macron’s revolving door of prime ministers and failed fiscal policies have left France’s economy teetering on the brink.
