The Moody’s agency barely gave French Prime Minister François Bayrou time to settle in at Matignon on Friday, downgrading France’s sovereign rating in the following hours. It lowered the rating by one notch, to Aa3, with a stable outlook.
The agency, which until then ranked France slightly above its competitors, joins them: S&P ranks France AA- with a stable outlook, and Fitch AA- with a negative outlook.
Moody’s has repeatedly expressed concern about the situation of political uncertainty that has gripped France since the dissolution of the National Assembly announced on June 9 by French President Emmanuel Macron.
The negative outlook for the previous note only dates from the end of October. Moody’s announced on the same day of the censorship of Michel Barnier’s government, December 4, that this event could only be “negative” for France’s credit rating.
No budgetary consolidation
For Moody’s, France’s public finances will be “considerably weaker” in the next three years than it previously forecast, due to “political fragmentation more likely to prevent significant fiscal consolidation.”
She judges the probability “low” of seeing the next government “sustainably reduce the extent of the budget deficit beyond next year”.
While the Barnier government was banking on a public deficit of 6.1% of GDP this year and had constructed its budgetary texts on the basis of a public deficit of 5% in 2025, to return below the limit of 3% tolerated by Brussels in 2029, Moody’s doesn’t believe it.
The rating agency anticipates a public deficit stagnating at 6.3% of GDP in 2025 and still at 5.2% in 2027. Thus, instead of reducing, the public debt would increase from 113.3% of GDP in 2024 to around 120% in 2027.
“If debt capacity has long been a relative asset of France in terms of credit, this asset is eroding compared to its peers benefiting from a similar rating,” observes Moody’s.
French Minister of Economy and Finance Antoine Armand said in a statement that the appointment of François Bayrou provided “an explicit response” to the concerns of the rating agency.
“Inherited by entire decades”
Michel Barnier and François Bayrou indeed showed great attention to these questions during their very courteous handover of power on Friday afternoon. Mr. Barnier wanted to leave a solemn message: “It would be wrong to forget the deficit and the debt […] otherwise they will be brutally reminded of all of us.”
“No one knows the difficulty of the situation more than me,” replied Mr. Bayrou, recalling having “taken inconsiderate risks in [sa] political life to pose [lors d’élections, y compris présidentielles, auxquelles il se présentait] the question of debt and deficits.
“And everyone said: ‘He’s completely crazy. We’re not running a campaign on debt,'” he recalled, smiling.
Judging that this is both a financial and “moral” problem, with the weight that the debt places on children, the newly appointed Prime Minister promised that in the face of this situation “inherited from entire decades” , his “guideline” would be “to hide nothing, to neglect nothing and to leave nothing aside”.
This article was automatically published. Sources: ats / afp
