Moody's Downgrades France's Credit Rating to Aa3 with Stable Outlook

Moody's downgraded France's credit rating to Aa3 on Saturday with a stable outlook, after months of political crisis and the appointment of new prime minister François Bayrou.

Moody's cited "political fragmentation" in France in its decision, which came after parliament ousted Michel Barnier's government in a historic no-confidence vote following a standoff over an austerity budget.

"The decision to downgrade France to Aa3 reflects our view that French public finances will be significantly weakened by the country's political fragmentation, which will limit in the foreseeable future the scope and scale of measures that could narrow the large deficit," the ratings agency said in a statement.

“In a highly fragmented political environment, there is now little prospect that the next government will be able to sustainably reduce the size of the fiscal deficit beyond next year,” Moody’s said.

In October, the ratings agency opened the door to a downgrade of France rating when it changed the country’s outlook to negative from stable.

Bayrou's appointment makes him France's fourth prime minister this year, with Barnier ousted after just three months in office.

The newly appointed prime minister faces the immediate challenge of forming a government that can survive a no-confidence vote in a divided parliament and drafting a budget for 2025 in an attempt to mitigate economic turmoil.