The world's top three credit rating agencies, Moody's, have forecasted that the parliamentary vote of no confidence against the French Michel Barnier government will have a negative impact on the country's credit rating.
On the 5th (local time), Moody's stated in a press release that the passage of the no-confidence motion by the National Assembly against the French government has "reduced the likelihood of fiscal consolidation" and that "the political deadlock will worsen." They added, "This (no-confidence) vote reflects the divided political environment in France" and diagnosed that it "will have a negative impact on the national credit."
Earlier, the French National Assembly passed the no-confidence motion against the Barnier government, which was proposed by the left-wing coalition New Popular Front (NFP). This was due to the government's choice to use the 'parliamentary bypass' card to pass next year's austerity budget. Prime Minister Barnier, who earned the dishonor of being the shortest-serving prime minister in the history of the French Fifth Republic, resigned along with his cabinet, casting a shadow over the passage of next year's budget. If the budget for the next year is not passed by the end of the year, in the worst-case scenario, a 'shutdown' could occur, paralyzing public administration for the first time in the history of the French Fifth Republic.
Previously, in October, Moody's maintained France's sovereign credit rating at 'Aa2' but downgraded the credit outlook from 'stable' to 'negative' due to concerns over the fiscal deficit. Moody's forecasted France's fiscal deficit for this year at 6.3% of gross domestic product (GDP), which is 0.2 percentage points higher than the French government's own projection. The outlook was further projected at 5.3% for 2025 and 4.7% for 2026, stating that "it is expected to significantly exceed the European Union (EU) limit." The EU standard is 3% or less of GDP.
Standard & Poor's (S&P), which stands alongside Moody's as a leading credit rating agency, also noted on the same day that "with less than four weeks remaining until the end of the year, even if a new government is formed, the likelihood of the 2025 budget being passed within this year is low." They particularly pointed out that the fiscal deficit reduction measures, such as tax increases introduced by the Barnier government, may be rolled back under the succeeding government.
On the 29th of last month, S&P maintained France's credit rating at 'AA-' and the credit outlook as 'stable,' but expressed concerns that "political division within France is deepening, complicating fiscal management."
The French business community is also full of worries about the government collapse. Patrick Martin, chairman of Medef (Mouvement des Entreprises de France), France's largest business federation, told AFP on the previous day, "It will definitely leave a mark," emphasizing that "the new government must quickly restore stability as it risks losing the trust of creditors and neighboring countries."
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