Mark Jones
LONDON (Reuters) – Early parliamentary elections in France are negative for the country’s credit rating, rating agency Moody’s (NYSE:) warned.
“These early elections increase risks to fiscal consolidation,” Moody’s said in a statement late Monday, calling them “credit negative” for the country’s Aa2 rating, one notch above the equivalent rating from Fitch and S&P Global.
“Potential political instability poses a credit risk given the difficult financial situation the next government will inherit,” it added, saying France’s current “stable” rating outlook could be downgraded to “negative” if its debt metrics continue to deteriorate. .
“A weakening commitment to fiscal consolidation will also increase downward credit pressure,” Moody’s said.
President Emmanuel Macron called shocking early parliamentary elections on Monday following a crushing defeat in European Parliament elections over the weekend to Marine Le Pen’s far-right party.
Macron’s surprise decision, which represents a roll of the dice on his political future, could hand more political power to the far right after years of absence and deny him the presidency with three years to go.
The legislative vote will take place on June 30, less than a month before the start of the Paris Olympics, with a second round to take place in July.
Moody’s highlighted that the country’s debt burden, which already exceeds 110% of GDP, is higher than other similarly rated countries and has seen almost constant growth since the 1970s due to persistently large structural budget deficits.
Earlier this month, S&P Global downgraded France over the same concerns, and Moody’s has signaled it would encourage the country to follow suit.
“The outlook and ultimately the ratings could turn negative if we conclude that the deterioration in debt affordability, which we measure as interest payments relative to income and GDP, would be significantly greater in France than in its rated peers “, it said.