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Moody’s issues warning on France’s credit rating over early elections By Reuters

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LONDON (Reuters) – France’s snap parliamentary election will have a negative impact on the country’s credit score, credit rating agency Moody’s (NYSE:) warned.

“This early election increases the risk to fiscal consolidation,” Moody’s said in a statement Monday, adding that the rating is negative for the Aa2 rating, one notch above Fitch and S&P Global.

“Given the challenging fiscal situation that the next government will inherit, potential political instability is a credit risk,” he said. “If France’s debt indicators deteriorate further, the current ‘stable’ outlook on France’s credit rating could be downgraded to ‘negative.’ “There is,” he added.

Moody’s said, “As the will to achieve fiscal consolidation weakens, downward credit pressure will increase.”

President Emmanuel Macron called a shock legislative election on Monday after suffering a crushing defeat to far-right party Marine Le Pen in a European Parliament vote last weekend.

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 years later and leave him neutral three years before the end of his presidential term.

The legislative vote will be held on June 30, less than a month before the opening of the Paris Olympics, and a second round of voting will be held in July.

Moody’s highlighted that the country’s debt burden, which already exceeds 110% of GDP, is higher than that of other similarly rated countries and has increased almost continuously since the 1970s due to persistently large structural budget deficits.

© Reuters.  A European election poster featuring photos of French far-right National Union (RN) leaders Marine Le Pen and Jordan Bardella can be seen near the RN party headquarters in Paris, a day after the French far-right party won the European Parliament.  French early legislative elections announced and voted on 10 June 2024.  REUTERS/Gonzalo Fuentes

S&P Global downgraded France’s credit rating earlier this month due to the same concerns, and Moody’s indicated it would follow suit.

“Concluding that the deterioration in debt servicing, as measured by revenue and interest payments relative to GDP, would be significantly greater in France than in other rated countries could change the outlook and ultimately the rating to negative.” said.

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