By Marc Jones
LONDON (Reuters) – France’s snap parliamentary elections are negative for the country’s credit score, ratings agency Moody’s (NYSE:) has warned.
“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 and S&P Global’s equivalent score.
“Potential political instability is a credit risk given the challenging fiscal picture the next government will inherit,” it added, saying the currently “stable” outlook on France’s rating could be cut to “negative” if its debt metrics worsened further.
“A weakening commitment to fiscal consolidation would also increase downward credit pressures,” Moody’s said.
President Emmanuel Macron called a shock snap legislative election on Monday following a bruising loss in the weekend’s European Parliament vote to the far-right party of Marine Le Pen.
Macron’s unexpected decision, which amounts to a roll of the dice on his political future, 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 will take place on June 30, less than a month before the start of the Paris Olympics, with a second round on July.
Moody’s highlighted that the country’s debt burden, which is already over 110% 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 French rating earlier this month due to the same concerns, and Moody’s signalled 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.
