Alarm over France’s fiscal situation grew on Friday after rating agency Moody’s issued a negative outlook on the country’s sovereign debt rating amid concerns over the country’s rapidly rising debt and budget deficit.
The outlook raises the risk of political deadlock in France as Prime Minister Michel Barnier struggles to get a newly elected and deeply divided parliament to pass an austerity budget, Moody’s said. It reflects that.
France’s debt and deficit have ballooned, making it one of Europe’s most financially troubled countries. The European Commission threatened sanctions, including the imposition of spending limits, for breaching the region’s fiscal discipline rules.
“The decision to change the outlook from stable to negative reflects the increasing risk that the French government is unlikely to take steps to prevent a continuation of higher-than-expected budget deficits and a worsening of its debt-paying capacity,” Moody’s said in a statement. ” he said. “The fiscal deterioration we are already seeing is beyond our expectations.”
The rating could have been worse. Moody’s has decided to leave the rating of French government bonds unchanged at Aa2. However, it is unclear how long that evaluation will last.
Last week, Fitch Ratings issued a negative outlook on France’s sovereign rating. Fitch maintained its rating at “AA-” but warned that the rating could be revised down if the government’s budget is not passed. A decline in credit ratings could increase borrowing costs, putting further strain on government finances.
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