The rating agency Moody’s downgrades France’s rating by one notch, to Aa3, as François Bayrou takes office

In a surprise announcement, the rating agency Moody’s decided to downgrade France’s sovereign rating by one notch to Aa3 with a stable outlook, on the night of Friday December 13 to Saturday December 14, the same day of the nomination of the new Prime Minister, François Bayrou.

The American agency, which had already given the French Aa2 rating a negative outlook in October, had warned as soon as the vote to censure Michel Barnier’s government on December 4, that this event could have an impact ” negative “ for France’s sovereign rating.

“We expect France’s public finances to be significantly weaker over the next three years compared to our October base case” due to a “political fragmentation more likely to prevent meaningful fiscal consolidation”writes Moody’s in a press release to explain this unexpected announcement.

“It is now very unlikely that the next government will sustainably reduce the scale of budget deficits beyond next year”she believes.

The agency, however, gave France’s credit rating a stable outlook, considering that the country had “considerable assets (…) in terms of credit, notably a large, rich and diversified economy ».

Bercy “takes note”

Moody’s, which until then placed France slightly above other rating agencies, now joins its competitors: Standard & Poor’s ranks France at level AA− with stable outlook, and Fitch at level AA− with negative outlook. However, everything still reflects good, even high, credit quality.

While Bercy did not seem to expect such a rapid further deterioration, the resigning finance minister, Antoine Armand, said, in a message on “take note” of the new rating announced by Moody’s. According to him“the agency highlighted recent parliamentary developments and the current uncertainty that results from them on the improvement of our public finances”.

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”observe Moody’s.

Bayrou claims to know “the difficulty of the situation”

Antoine Armand estimated, in his press release, that the appointment of François Bayrou and “the reaffirmed desire to reduce the deficit” brought “an explicit answer” to the concerns of the rating agency.

Michel Barnier and François Bayrou indeed showed strong attention to these questions during their handover of power on Friday afternoon. The now former head of government wanted to convey a solemn message: “It would be wrong to forget the deficit and the debt (…) otherwise they will brutally remind us all”.

“No one knows the difficulty of the situation more than me”replied Mr. Bayrou, recalling having “took reckless risks in [sa] political life to pose the question of debt and deficits »referring to elections, including presidential elections, in which he was running. “And everyone said: ‘He’s completely crazy, we’re not running a campaign on debt’”he recalled, smiling.

Judging that this is a problem that is both financial and also « moral »with the weight that the debt places on children, the new Prime Minister promised that, faced with this situation “inherited from entire decades”he would have for “line of conduct” of “hide nothing, neglect nothing and leave nothing aside”.