France's credit rating gets reduced by a ratings agency.
Moody's recently lowered France's credit rating from Aa2 to Aa3. The agency stated that the public finances in France are expected to weaken substantially in the near future. This means France's creditworthiness is now three levels lower than Germany, which is rated at the highest Aaa level. While this might make borrowing more expensive for France, Moody's upgraded its outlook on Europe's second-largest economy from "negative" to "stable".
The change in rating was made right after centrist politician François Bayrou was appointed as the new French prime minister by President Emmanuel Macron. The previous center-right government of Michel Barnier was ousted by a vote of no confidence from the right-wing and left-wing factions in the French National Assembly over the proposed austerity budget. At that time, Moody's had predicted this development would negatively impact France's creditworthiness.
Projected budget deficit of 6.1%
France is yet to approve a budget for the upcoming year. A special law serves as a temporary solution. The country is dealing with a high debt load and excessive new borrowing. In fact, the predicted budget deficit for this year is 6.1%. As a consequence, an EU Commission deficit procedure is ongoing against France.
Moody's points out "political fragmentation" in the country, which could hinder a substantial improvement in the budget. In France, no political faction possesses an absolute majority in the National Assembly. Coalitions are rare in the country. Politically, France is divided into three major groups: Macron's centrist forces, the left-wing camp, and Marine Le Pen's right-wing nationalists. "It's highly unlikely that the next government will manage to significantly decrease the budget deficit in the coming year," Moody's announced.
The projected budget deficit of 6.1% and the ongoing EU Commission deficit procedure against France might negatively impact the overall state of the economy. Given the political fragmentation in the country and the lack of an absolute majority in the National Assembly, it might be challenging for the next government to significantly reduce the budget deficit.
