Moody's warns of a crisis in France's credit rating, may downgrade to negative.


Recently, the rating agency Moody's expressed concerns about France's future and indicated that it might downgrade the new government's rating.

Rating agency Moody's has warned that France's sudden parliamentary elections are detrimental to the country's credit rating.

In a statement on Monday evening, Moody's stated: "This snap election increases the risk of fiscal consolidation." Moody's described this as "credit negative" for the country's Aa2 rating, which is one notch higher than Fitch and S&P Global's equivalent ratings.

Moody's added: "Given the financial situation the next government will inherit, potential political instability is a credit risk." The current "stable" outlook on France's rating could be downgraded to "negative" if its debt metrics worsen further.

Moody's said: "A weakened commitment to fiscal consolidation would also increase credit pressure."

President Emmanuel Macron unexpectedly announced this snap legislative election, to be held on June 30, less than a month before the opening of the Paris Olympics, after suffering a significant defeat in Monday's European Parliament elections, with the second round of elections to be held in July.

Macron's decision is akin to a gamble on his political future, as it could hand major political power to the far right, limiting his presidential term with three years remaining.

Moody's pointed out that France's debt burden already exceeds 110% of GDP, higher than other countries with the same rating, and has been persistently increasing due to sustained large-scale structural budget deficits since the 1970s.

S&P Global downgraded France's rating earlier this month for similar concerns, and Moody's has hinted at its potential following.

Moody's stated: "If we conclude that the deterioration in France's debt burden (which we measure through interest payments relative to revenue and GDP) will be significantly higher than that of similarly rated countries, the outlook and ultimately the rating could turn negative."



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