Rating agency Moody’s downgraded France’s credit outlook from “stable” to “negative” on Friday, citing concerns over the country’s rising public debt and persistent budget deficits.
The agency maintained France’s Aa2 rating but warned of potential future downgrades due to ongoing fiscal challenges.
This shift reflects skepticism about the French government’s monetary policy, with France’s deficit expected to exceed 6 percent of GDP this year, double that of EU stability targets.
The credit agency attributed the current deficit to higher-than-expected government spending and the political uncertainty following the snap election earlier this year by French President Emmanuel Macron, which it states hindered fiscal reforms.
“The fiscal deterioration that we have already seen is beyond our expectations and stands in contrast with governments in similarly rated countries,” Moody’s said.
Finance Minister Antoine Armand acknowledged Moody’s decision at a press conference in Washington D.C. on the sidelines of IMF and World Bank meetings on Friday.
He insisted the new government remains committed to reducing the deficit to 5 percent of GDP by next year and claimed Michel Barnier’s administration had not waited for the inevitable downgrade in France’s rating before acting to implement the necessary fiscal measures.
“We noted the prospect of the negative outlook. We didn’t wait for the negative outlook to take the necessary measures,” he told the press.
Moody’s last issued a similar “negative” outlook on France’s rating in 2012, during the European debt crisis, when France held a slightly stronger Aa1 rating.
A subsequent downgrade in 2015 set the current Aa2 level. It comes as French lawmakers debate the draft budget bill for next year, which includes several austerity measures designed to control the debt.
However, political tensions over the bill are mounting and it remains uncertain whether the current minority government will be successful in implementing its desired fiscal policy.
