Moody's agency downgrades France's rating by one notch in view of “political fragmentation”

After marking the French rating with a negative outlook last October, the rating agency Moody's took action by officially downgrading it, going from Aa2 to Aa3, this time with a stable outlook.

A poisoned welcome gift for the new Prime Minister. A few hours after the appointment of François Bayrou as head of the next French government, the rating agency Moody's announced that it was downgrading France's sovereign rating by one notch during the night of Friday December 13 to Saturday December 14. The agency notably cited the political situation in the country as the reason for this reduction.

This decision “reflects our view that the country's public finances will be significantly weakened over the coming years”, due to “political fragmentation more likely to prevent significant fiscal consolidation”, the agency said.

France's sovereign rating now stands at Aa3 with a stable outlook. Already at the end of October, Moody's had attached the previous Aa2 rating with a negative outlook, and had issued a note on the same day of the censure of the previous Prime Minister Michel Barnier, on December 4, to signal that this event was “negative” for the French note.

The Minister of Economy and Finance “takes note”

The resigning Minister of Economy and Finance, Antoine Armand, immediately “took note” of this decision: “The Moody's agency announced the change in France's rating (…) highlighting the recent parliamentary developments and the resulting current uncertainty over the improvement of our public finances. I take note of this,” the minister wrote in a press release.

“The appointment (of) François Bayrou and the reaffirmed desire to reduce the deficit provide an explicit response,” he adds.

In his brief handover speech on Friday afternoon, Mr. Bayrou vigorously insisted on the need to reduce the public deficit and the country's debt, recalling having led “presidential campaigns on this theme” in the past.

Judging that this is both a financial but also a “moral” problem, with the weight that the debt places on the children, the new tenant of Matignon 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”.