Moody’s has downgraded France’s credit rating to Aa3, signaling mounting concern over the nation’s political and financial instability. This move, announced shortly after President Emmanuel Macron appointed François Bayrou as the country’s fourth prime minister this year, underscores doubts about the government’s ability to address its spiraling fiscal crisis.
The downgrade will increase borrowing costs for France, which is already grappling with a national debt exceeding €3.2 trillion, or 112% of its GDP—far above the eurozone’s recommended threshold. Interest payments alone have reached €60 billion annually, surpassing the nation’s military budget. This fiscal strain coincides with a 6.1% budget deficit, double the eurozone average, leaving investors skeptical about France’s creditworthiness.
The political landscape further complicates the situation. Macron’s snap elections earlier this year resulted in a deeply fragmented Parliament, paralyzing effective governance. François Bayrou, a seasoned centrist, inherits the challenge of finalizing a stopgap budget to prevent a government shutdown while crafting a new 2025 fiscal plan. His predecessor, Michel Barnier, was ousted after proposing €60 billion in spending cuts and tax hikes, which sparked backlash across the political spectrum.
Moody’s cited the risk of a “negative feedback loop” where higher deficits lead to increased debt and elevated borrowing costs. This concern is not isolated; both Fitch and Standard & Poor’s have also downgraded France’s debt, highlighting widespread unease about its economic trajectory.
France’s fiscal troubles are partly a legacy of emergency spending during the COVID-19 pandemic. While these measures provided short-term relief, they left a lasting imprint on the national debt. Now, with rising interest rates across the eurozone, France faces the dual challenge of servicing its debt and restoring economic stability.
Political gridlock exacerbates these challenges. Bayrou must navigate a Parliament split among far-right, far-left, and centrist factions to push through essential reforms. Moody’s warns that the current deadlock threatens France’s institutional stability and could lead to further downgrades if unresolved.
The stakes are high for France, a cornerstone of the eurozone. The country’s financial struggles echo those of Italy, which now holds the dubious distinction of being the only eurozone nation with higher bond yields than France. Rising borrowing costs and investor uncertainty could undermine France’s economic influence within the European Union.
As François Bayrou put it, the deficit and debt pose “a moral problem, not just a financial problem.” For France, resolving this crisis requires not only fiscal discipline but also political cohesion—an increasingly rare commodity in its fractured government. Whether this new leadership can stabilize the situation remains an open question.