France Avoided a Downgrade by Moody’s After a Week of Crisis

France managed to avoid a credit rating downgrade by Moody’s Ratings. This provided some breathing room for the country, which has been grappling with a sharp rise in bond yields, a political stalemate, and street protests, according to Bloomberg.

Moody’s maintained the rating of the eurozone’s second-largest economy at Aa3—seven notches above speculative grade and on par with the United Kingdom. The rating outlook remains negative. “Weaker economic growth and a widening deficit have resulted in France’s debt burden being somewhat higher than we had previously expected,” Bloomberg quoted Moody’s as saying. “Bond yields have risen faster than we expected, and large-scale social protests could limit the ability to reduce the budget deficit.”

France is still unable to find a way to curb its growing debt burden, which has made the country the focus of investor concerns in the bond market in recent weeks, according to Bloomberg. This month, yields on French government bonds rose more sharply than in any other developed economy, reaching a 24-year high. The rise in public debt is fueled by a budget deficit, which is expected to increase to 5.4% of GDP this year. A political stalemate, slowing economic growth, and rising debt-service costs have derailed the government’s efforts to restore fiscal health, Bloomberg notes.

French Prime Minister Sébastien Lecornu proposed a budget bill that calls for significant spending cuts and increased tax revenues in order to reduce the deficit to 5% of GDP next year. However, the government does not have a majority in parliament. On Friday, the French National Assembly rejected the revenue provisions of the 2027 social security budget bill. As a result, the original version of the bill will be sent to the Senate. Next week, members of the lower house will resume debate on the main state budget bill.

“The 2027 budget process is taking place against the backdrop of some of the largest social protests in France in many years,” Moody’s said in a statement. “Despite the challenging political and social environment, our baseline scenario assumes that the 2027 budget, which calls for a reduction in the deficit, will ultimately be adopted, possibly by decree.”

The increased uncertainty has caused one of the key risk indicators in the bond market to rise to levels last seen during the eurozone debt crisis. The spread between the yields on 10-year French and German government bonds—with German bonds considered a safe-haven asset in the region—reached 178 basis points on Thursday. In early September, before the sell-off intensified, it stood at just 85 basis points.

Moody’s decision to keep France’s rating unchanged for now means that its rating remains one notch higher than those of S&P Global Ratings and Fitch Ratings. Both agencies downgraded the country’s ratings in the fall of 2025: the decisions were linked to deteriorating public finances and political uncertainty surrounding the budget. Last month, France also faced downgrades from rating agencies: Scope Ratings lowered its credit rating, and Morningstar DBRS changed its rating outlook to negative. S&P’s next scheduled rating update for France is expected on November 27.

This article was AI-translated and verified by a human editor