The agency linked the cut to growing political instability

France's credit score has been downgraded from AA- to A+, the country's lowest on record, with Fitch Ratings citing political instability and uncertainty over how the government will rein in mounting debt and budget deficit.

The EU's second-largest economy has one of the bloc's highest debt levels after Greece and Italy, at about 113% of GDP. Its deficit is projected at 5.4-5.8% this year, well above the EU's 3% limit. The downgrade followed last week's ouster of Prime Minister Francois Bayrou after a failed confidence vote on his €44 billion austerity plan, which sought to cut the deficit and debt by slashing public-sector jobs, curbing welfare, and scrapping two public holidays.

"The government's defeat in a confidence vote illustrates the increased fragmentation and polarization of domestic politics," Fitchsaidon Friday. "This instability weakens the political system's capacity to deliver substantial fiscal consolidation."

The agency said it was unlikely that France's deficit would drop in the next several years and warned debt would rise further to 121% in 2027, citing the lack of "a clear horizon for debt stabilization" given political instability. Fitch added that high taxes and large social spending leave little room to stabilize finances, and cautioned that the 2027 presidential race will likely limit the potential for fiscal reforms.

Outgoing Finance Minister Eric Lombard said he has "taken note" of the downgrade but insisted the economy was strong. He blamed fiscal strains on interest rates that are "too high" and noted that new Prime Minister Sebastien Lecornu, the fifth in less than two years, is already consulting parliament on a budget to restore public finances.

A downgrade usually raises borrowing costs by lifting bond yields. France's ten-year yield climbed to 3.5% on Friday, near Italy's, one of the bloc's weakest performers. Higher yields could increase debt-servicing costs, analysts warned, which Bayrou previously said were already at an "unbearable" level.

Some experts also warned that the downgrade could prompt similar cuts by other agencies, triggering forced selling by institutional investors barred from holding debt below AA.

(RT.com)