French Credit Rating Cut on Crisis That Imperils Finances #FrenchFinance

(Bloomberg) — Moody’s Ratings cut France’s credit grade, heaping pressure on the new government to bring a ballooning deficit under control after far-right leader Marine Le Pen toppled the previous prime minister over a budget dispute.

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In an unscheduled change, Moody’s lowered its assessment of the euro area’s second-biggest economy to Aa3 from Aa2, three levels below the maximum rating. France has already been cut to equivalent levels by Fitch and S&P.

The decision “reflects our view that the country’s public finances will be substantially weakened over the coming years,” Moody’s said in a statement. “There is now very low probability that the next government will sustainably reduce the size of fiscal deficits beyond next year.”

The rebuke came just hours after President Emmanuel Macron appointed Francois Bayrou as the country’s fourth premier in a year. Bayrou’s predecessor, Michel Barnier, was ousted in a confidence vote Dec. 4 after Le Pen’s National Rally lined up alongside left-wing parties to protest his plans for narrowing France’s budget deficit.

Outgoing Finance Minister Antoine Armand said the downgrade reflects the recent parliamentary developments and uncertainty around the budget.

“The nomination of Francois Bayrou as prime minister and the reaffirmed will to reduce the deficit will provide an explicit response,” Armand said in a social media post.

To avoid a no-confidence vote from the left, Bayrou will have to pledge not to use the same constitutional maneuver that Barnier employed to push the budget through without a vote in the National Assembly, Marine Tondelier, the head of the Green Party, said Saturday in an interview on France Inter radio.

The government’s collapse and the scrapping of France’s 2025 budget add to months of political upheaval that has already hammered business confidence, with the country’s economic outlook steadily deteriorating.

Barnier’s budget foresaw significant belt tightening by historical standards to bring the deficit to 5% of economic output from 6.1% this year.

France has long been out of compliance with European Union rules that require member states’ debt to be below 60% of GDP and a deficit under 3%.

Bayrou will likely have to pare back those ambitions in order to get support from some of the lawmakers who toppled Barnier, but economists say the final outcome may even be no improvement.

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