France, mired in a fiscal crisis, has put out the most urgent fire — the threat of a sovereign credit rating downgrade. Moody's, one of the three major global credit rating agencies, decided to leave France's rating unchanged. But the agency kept its outlook at "negative," prompting assessments that it is too early for relief.
Moody's released the results of its periodic review of France's credit rating on the 23rd, after the close of New York financial markets.
The agency first noted that the announcement was not a formal "credit rating action" and did not indicate whether any rating action would follow in the near future, then explained its views on the existing rating and outlook.
Since its previous review, Moody's said, "slower growth and higher deficits have pushed France's debt burden somewhat higher than previously expected." It added that "the sharp rise in French government bond yields in recent months heightens the risk of a further weakening in France's debt affordability."
The agency also warned of a possible downgrade. "Additional evidence that the capacity of legislative institutions to take measures to prevent a steep and prolonged deterioration in debt affordability has weakened further would likely lead to a downgrade," Moody's said.
It added that "a prolonged suspension or reversal of previous major structural reform provisions, in particular pension reform, would also add to downward pressure on the rating," and said that "less likely, a scenario of further escalation in geopolitical risk could also exert downward pressure on creditworthiness."
Ahead of the decision, most market participants had expected a downgrade. Some analysts had argued that the recent surge in French government bond yields already priced in a Moody's downgrade.
Prime Minister Sébastien Lecornu welcomed the outcome in a post on X, formerly Twitter, shortly after the announcement.
Lecornu said the decision to maintain the rating "proved wrong the predictions of decline made by many experts and by those speculating against French government bonds." He added that "it is up to us to push forward so that France can put together a budget consistent with a deficit target of 5% by the end of the year."