Moody’s downgrades France credit rating to Aa3

Ratings agency Moody’s downgraded France’s credit rating Saturday, December 13, to Aa3 with a stable outlook, following months of political crisis and the appointment of centrist Francois Bayrou as prime minister.

Moody’s cited France’s “political fragmentation” in its decision, which comes after parliament ousted Michel Barnier’s government in a historic no-confidence vote following a standoff over an austerity budget.

“The decision to downgrade France’s ratings to Aa3 reflects our view that France’s public finances will be substantially weakened by the country’s political fragmentation which, for the foreseeable future, will constrain the scope and magnitude of measures that could narrow large deficits,” the ratings agency said in a statement.

Bayrou’s appointment makes him France’s fourth prime minister this year, with Barnier being booted out after just three months in office.

The newly appointed premier faces the immediate challenge of forming a cabinet that can survive a no-confidence vote in a divided parliament and thrashing out a 2025 budget in a bid to limit economic turmoil.

“In a highly politically fragmented environment, there is now very low probability that the next government will sustainably reduce the size of fiscal deficits beyond next year,” Moody’s said.

The ratings agency opened the door to downgrading France in October, when it changed the country’s outlook from stable to negative.