(Bloomberg) -- France’s credit rating was downgraded by Moody’s Ratings after far-right leader Marine Le Pen toppled the country’s government in a dispute over deficit reduction.
In an unscheduled change, Moody’s lowered its assessment of the euro area’s second-biggest economy to Aa3 from Aa2, three levels below the maximum rating. France has already been cut to equivalent levels by Fitch and S&P.
The decision “reflects our view that the country’s public finances will be substantially weakened over the coming years,” Moody’s said in a statement. “There is now very low probability that the next government will sustainably reduce the size of fiscal deficits beyond next year.”
The rebuke comes just hours after President Emmanuel Macron appointed Francois Bayrou as France’s fourth premier in a year. Bayrou’s predecessor Michel Barnier was ousted in a confidence vote last week after Le Pen’s National Rally lined up alongside left-wing parties to protest against his plans for narrowing France’s budget deficit.
Outgoing Finance Minister Antoine Armand said the downgrade reflects the recent parliamentary developments and uncertainty around the budget.
“The nomination of Francois Bayrou as prime minister and the reaffirmed will to reduce the deficit will provide an explicit response,” Armand said in a social media post.
The government’s collapse and the scrapping of France’s 2025 budget add to months of political upheaval that has already hammered business confidence, with the country’s economic outlook steadily deteriorating.
Barnier’s budget foresaw significant belt tightening by historical standards to bring the deficit to 5% of economic output from 6.1% this year. The next government will likely have to pare back those ambitions in order to get support from some of the lawmakers who toppled Barnier, but economists say the final outcome may even be no improvement.
Plans to repair public finances were already derailed this year by poor tax revenues as consumer spending and corporate profits disappointed.
The political turmoil has driven the spread between French government bonds and their German counterparts to the widest since 2012.
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