By Marc Jones
LONDON (Reuters) – The outcome of France’s parliamentary elections is a negative for the country’s credit rating, Moody’s warned, saying a grand coalition would complicate decision-making and the task of getting debt under control.
France is facing complicated negotiations to form a government after a left-wing victory in Sunday’s election blocked Marine Le Pen’s attempts to bring the far right to power.
Options include the left forming a minority government, which would then be dependent on a vote of no confidence from rivals if they failed to reach an agreement, or an unruly coalition of parties with little common ground.
“Given the constraints facing any future administration, it is unlikely that we will see expenditure-driven fiscal consolidation in 2025,” Moody’s said in a note, echoing many of the concerns raised by S&P Global on Monday.
Moody’s also said it was unlikely that France would be able to implement further tax hikes, as its tax-to-GDP ratio is already the highest in the OECD.
“Therefore, the fiscal implications of the election outcome are negative for creditworthiness,” said the ratings agency, whose current Aa2 “stable” outlook rating for France is one notch higher than both S&P and Fitch.
France’s spending trend means that the government deficit is unlikely to fall below 4% of GDP until 2027, by which time the debt ratio of almost 110% of GDP will have increased by a few more percentage points.
Moody’s identified three factors that prompted a rating change.
* The outlook would turn negative if, for example, budget and government debt figures were to turn out significantly worse than previously expected, particularly in terms of interest payments relative to revenues and GDP.
* There was a declining willingness to consolidate budgets.
* There was a rollback of the labour market liberalisation and pension reforms of the past seven years. According to Moody’s, this would significantly limit the country’s medium-term growth potential and/or fiscal development.
“The current unprecedented circumstances will test the effectiveness of French institutions and policies,” Moody’s said.
(Reporting by Marc Jones; Editing by Amanda Cooper and Christina Fincher)
