Moody's downgrades France's credit rating

As the agency announced, the rating was lowered from Aa2 to Aa3. The decision reflects the agency's view that France's public finances will be considerably weakened in the coming years. Borrowing could now become more expensive for France. However, Moody's has raised the outlook for Europe's second-largest economy from "negative" to "stable".

The move came immediately after the appointment of centrist politician François Bayrou as the new French Prime Minister by head of state Emmanuel Macron. A week ago, the right-wing nationalists and the left-wing camp in the French National Assembly toppled the previous center-right government of Michel Barnier with a vote of no confidence in the dispute over the planned austerity budget. Even then, Moody's said: "This event is bad for the credit rating."

Country divided into three blocks

France is still without a budget for the coming year, even if a special law is to serve as a transition. The country needs to get its high debts and new borrowing under control. The country is expecting a budget deficit of 6.1 percent in the current year. The EU Commission has initiated deficit proceedings against France due to its excessive new debt.

Moody's attested to the country's "political fragmentation", which could prevent a significant strengthening of the budget. None of the political camps in France has an absolute majority in the National Assembly. Coalitions are rather unusual in the country. The country is politically divided into three large blocs: Macron's centrist forces, the left-wing camp and Marine Le Pen's right-wing nationalists. "There is now a very low probability that the next government will significantly reduce the budget deficit beyond next year," Moody's said.