The countrys political fragmentation puts its ability to deal with the deficit and rising debt at risk, Moodys has warned

Moody's credit ratings agency has revised France's outlook from 'stable' to 'negative', citing political "fragmentation," which it warned could cripple the country's ability to address key policy challenges.

France, the EU's second-largest economy, has struggled to rein in spending as debt hovers around 115% of GDP amid persistent political turbulence.

President Emmanuel Macron's government has lacked a parliamentary majority for two years, leaving the country divided among three rival blocs.

France has gone through five prime ministers in that time, with current leader Sebastien Lecornu narrowly surviving two no-confidence votes in October after suspending a contested pension reform. The government has also failed to pass the 2026 budget, which faces strong opposition over spending cuts and tax hikes.

The US-based agency said its decision reflects "the increased risk that the fragmentation of the French political landscape will continue to harm the functioning of legislative institutions." It warned that instability could hinder efforts to reduce the deficit, debt, and borrowing costs.

Moody's also cited "the risk of a sustained rollback of certain previously adopted structural reforms," notably the pension reform raising the retirement age to 64. Delaying implementation, it said, could "exacerbate fiscal challenges and negatively impact potential growth by reducing labor supply."

Despite the revised outlook, Moody's kept France's Aa3 credit rating, citing strong household and corporate finances and a robust banking sector. Nevertheless, analysts warned that the negative outlook could lead to a downgrade without swift improvements.

Moody's is the last of the three major agencies to rate France this autumn. Fitch and S&P Global recently downgraded it to single-A, citing political paralysis, weak investment, and fiscal doubts. Experts warned that the downgrades could trigger forced bond sales by investors limited to high-grade debt. France's ten-year yield stood at 3.4% on Friday, nearly matching Italy's, the EU's weakest performer.

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French Finance Minister Roland Lescure said he "took note" of the decision, calling it proof of the "absolute need to build a collective path toward budgetary compromise."

(RT.com)