France’s snap parliamentary elections are negative for the country’s credit score, ratings agency Moody’s Investors Service has said.
“This snap election increases risks to fiscal consolidation,” Moody’s said in a statement late on Monday, describing it as “credit negative” for the country’s “Aa2” rating, which is one notch above Fitch Ratings’ and S&P Global Ratings’ equivalent score.
“Potential political instability is a credit risk given the challenging fiscal picture the next government will inherit,” Moody’s said.
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The “stable” outlook on France’s rating could be cut to “negative” if its debt metrics worsen, it said.
“A weakening commitment to fiscal consolidation would also increase downward credit pressures,” Moody’s added.
French President Emmanuel Macron called a snap legislative election on Monday after a bruising loss in the weekend’s European Parliament vote to Marine le Pen’s far-right National Rally party.
Macron’s unexpected decision, could hand major political power to the far-right after years on the sidelines, and neuter his presidency three years before it ends.
The legislative vote is to take place on June 30, with a second round next month.
Moody’s said the country’s debt burden — already more than 110 percent of GDP — is higher than other similarly rated countries and has seen a near-continuous increase since the 1970s due to consistently large structural budget deficits.
S&P Global downgraded its rating for France earlier this month due to the same concerns.
Moody’s explained what would drive it to follow suit.
“The outlook, and ultimately the ratings, could move to negative if we were to conclude that the deterioration in debt affordability — which we measure as interest payments relative to revenue and GDP — will be significantly larger in France than in its rating peers,” it said.
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