Moody's Downgrades France's Credit Rating from Aa2 to Aa3 Citing Political Division

"French Parliament Reflects Extremely Polarized Situation"

Moody's logo in Manhattan, New York, USA. Photo by Reuters and Yonhap News.

International credit rating agency Moody's announced on the 14th (local time) that it has downgraded France's sovereign credit rating from Aa2 to Aa3. This reflects the political crisis in France that has been ongoing for several months.

According to major foreign media, Moody's stated that the downgrade was due to France's political division. The credit rating outlook was set to 'stable,' indicating it is expected to be maintained for the time being. In Moody's credit rating scale, Aa3 is the fourth highest rating, just above the upper-medium grade range of A1 to A3.

Moody's explained, "The decision to lower France's credit rating reflects the view that political division in France has significantly weakened public finances and will limit the scope and scale of measures to reduce large deficits for the foreseeable future."

This decision came just ten days after the collapse of Prime Minister Michel Barnier's coalition government following a no-confidence vote amid a standoff over next year's budget proposal.

Prime Minister Barnier resigned after only three months in office. French President Emmanuel Macron appointed Fran?ois Bayrou, leader of the centrist MoDem party within the ruling coalition, as the new prime minister the day before.

However, it remains difficult for the new prime minister to stabilize the political situation. The French parliament lacks a dominant party, leading to extreme confrontations over policies and other issues.

Moody's stated, "In a politically highly divided environment, the likelihood that the next government will continuously reduce the fiscal deficit after next year is low."