PARIS: Moody’s Ratings maintained France’s credit rating at Aa3 on Friday, keeping the country’s negative outlook as political instability, mass protests and rising borrowing costs strain the eurozone’s second-largest economy.
The rating remains in Moody’s “high grade” category, but the negative outlook signals continued risk of a downgrade. Moody’s said the outlook reflects concern that political fragmentation could impair France’s legislative institutions and hinder efforts to address its elevated deficit, rising debt burden and higher borrowing costs.
“The negative outlook reflects the increased risk that the fragmentation of France’s political landscape will continue to impair the functioning of the country’s legislative institutions,” Moody’s said in its report.
The agency said it could return France’s outlook to stable if the country’s institutions make progress narrowing the deficit. Its assessment assumes France adopts a deficit-reducing 2027 budget and that financing costs and social tensions ease in coming months.
Market pressure
Investors had closely watched the decision as French government borrowing costs surged. France’s 10-year bond yield rose above 5% this week for the first time since 2002, while the spread over German bunds reached a 15-year high.
Moody’s said the sharp rise in yields heightens the risk that France’s debt affordability will weaken more quickly than it expects.
Fiscal challenges
France’s deficit stood at roughly 5.5% of gross domestic product, well above the European Union’s 3% limit. The country faces more than $1 trillion in debt maturing by 2030, and its finance ministry warned last month that debt is expected to reach 121.7% of GDP in 2027.
Moody’s said a significant and sustained fiscal effort will be needed beyond France’s presidential elections in April and May 2027 to put public finances on a stronger footing.
Unrest adds risk
The rating decision came after a week of civil unrest. More than 500,000 people marched across France last weekend to protest declining public services and the high cost of living.
Moody’s said the political instability, visible in current social tensions, risks hampering the government’s ability to address key policy challenges.
France avoided the same treatment from Moody’s that it received from other major raters: S&P Global and Fitch cut their ratings on France in 2025.
