Warnings over France’s financial situation grew on Friday when the Moody’s ratings agency issued a negative outlook for the country’s sovereign debt rating amid concerns about the nation’s rapidly rising debt and deficit.
The outlook reflects what Moody’s said were heightened risks of political gridlock in France as Prime Minister Michel Barnier struggles to get a newly elected — and deeply divided — Parliament to pass an austerity budget.
France has become one of the most financially troubled countries in Europe, with a ballooning debt and deficit. The European Commission has threatened sanctions, including enforced limits on spending, for breaching the bloc’s fiscal discipline rules.
“The decision to change the outlook to negative from stable reflects the increasing risk that France’s government will be unlikely to implement measures that would prevent sustained wider-than-expected budget deficits and a deterioration in debt affordability,” Moody’s said in a statement. “The fiscal deterioration that we have already seen is beyond our expectations.”
The assessment could have been worse; Moody’s decided to keep its Aa2 rating on France’s debt. But it was unclear how long that rating will continue.
Last week, Fitch Ratings issued a negative outlook for France’s sovereign credit rating. Fitch left the rating at AA– but warned that it could be revised lower if the government’s budget didn’t pass. Lower credit ratings can force borrowing cost higher, further straining a government’s finances.