France’s prime minister, Sébastien Lecornu, welcomed Moody’s decision on X, saying its decision to maintain the country’s sovereign debt rating “defies the predictions of decline”.
On Friday, Moody’s maintained France’s credit rating at Aa3 and kept a negative outlook, a result that defied general expectations of a downgrade. A cut would have put Moody’s assessment in line with the ratings assigned by Fitch and S&P.
The decision leaves France, the euro zone’s second-largest economy, with a little more room than markets had anticipated. It does not remove the problem Moody’s identified: a fragmented political landscape that could continue to impair the functioning of the country’s legislative institutions.
That problem has been building since snap elections in 2024 produced a hung parliament. Successive governments have struggled to pass budgets and carry out fiscal reform. In late 2024, Moody’s cut France from Aa2 to Aa3 as political and fiscal pressures mounted. Fitch Ratings and S&P Global Ratings then lowered the country to A+ in 2025, citing deteriorating public finances and political instability.
The figures have become harder to ignore. France’s deficit-to-GDP ratio is roughly 5.5%, above the European Union’s 3% limit for member nations. Public debt is approaching 120% of GDP and is projected to reach 121.7% in 2027. France also faces more than $1 trillion of debt maturing by 2030.
Bond investors have registered their own concern. This week, France’s 10-year bond yield surpassed 5% for the first time since 2002. The premium over German borrowing costs rose to 170 basis points, leaving the spread against German bunds at a 15-year peak.
Pressure is also visible beyond the bond market. Last weekend, more than 500,000 people marched in frustration at declining public services and high costs of living.
Moody’s said its Aa3 rating rests on an assumption that France will adopt a 2027 budget that reduces the deficit, and that financing costs and social tensions will moderate somewhat in the coming months. The agency said political instability and social tensions could hamper the government’s ability to deal with the elevated deficit, rising debt burden and a durable increase in borrowing costs.
Moody’s said it could return the outlook to stable if France’s institutions narrow the deficit. It also warned that significant and sustained fiscal effort would be required beyond the 2027 presidential election.
That election is approaching with Marine Le Pen currently ahead in the polls. The immediate test, however, is whether France’s divided legislature can pass the deficit-reducing 2027 budget on which Moody’s assessment depends.
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