Moody's downgrades France's credit rating

Ratings agency Moody's on Friday downgraded France's credit rating to "Aa3" from "Aa2," in a move that is likely to add pressure on the country's government to tackle its debt and deficit woes. 

It is three levels below the maximum rating given by Moody's. Rival credit rating agencies S&P and Fitch have already cut France to equivalent levels.

What did Moody's say?

Moody's cited France's "political fragmentation" in its decision.

"The decision to downgrade France's ratings to Aa3 reflects our view that France's public finances will be substantially weakened by the country's political fragmentation which, for the foreseeable future, will constrain the scope and magnitude of measures that could narrow large deficits," the ratings agency said in a statement.

"Looking ahead, there is now very low probability that the next government will sustainably reduce the size of fiscal deficits beyond next year," it added.

What to know about the crisis in France

The decision comes hours after President Emmanuel Macron named veteran centrist politician Francois Bayrou as his fourth prime minister this year.

Bayrou's predecessor, Michel Barnier, had to step down last week after parliament ousted his government in a historic no-confidence vote following a standoff over next year's budget.

Lawmakers opposed Barnier's plans to cut government expenditure to the tune of €60 billion to control France's spiraling fiscal deficit. 

Bayrou now faces the challenge of getting on board a divided legislature and formulating a 2025 budget which can contain the economic turmoil.

mfi/sri (AFP, Reuters)