French credit rating downgraded – political crisis behind

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French credit rating downgraded – political crisis behind
Photo: Abdul Saboor/AP/TT

France's newly appointed Prime Minister Francois Bayrou receives an not entirely unexpected "welcome gift" from the credit rating agency Moody's - the country's credit rating is lowered one notch to Aa3, three steps below the highest rating.

Moodys believes that the country's public finances will weaken significantly in the coming years. And it is not likely that the new government can influence the deficits significantly, according to the company. The French budget deficit is around 6 percent of GDP.

Already in October, Moodys flagged that a downgrade could be on the way. Since then, the economic and political crisis has intensified and the French parliament has voted out Bayrou's predecessor, Michel Barnier, in a vote of no confidence. Barnier only sat for three months in his post before Marine Le Pen's National Rally, on the far right, and Unsubmissive France, on the left, both voted to bring him down.

The triggering factor was a dispute over the outgoing government's budget for social insurance, with cuts, which Barnier pushed through with an exception rule for crisis situations.

One of Bayrou's first tasks, once he has formed a government, will be to quickly put together a budget for 2025.

Two other credit rating agencies, Fitch and S&P, have lowered their ratings earlier.

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