Moody’s downgrades 7 French banks amid political chaos set to spill into 2025

PARIS, FRANCE: French banking stocks declined following Moody’s downgrade of seven banks’ ratings amidst ongoing political instability in the country. This sentiment prompted selloffs in both French government bonds and the stock market. Moody’s downgraded the banks just days after revising France’s credit rating downwards, as the nation continues to grapple with prolonged political unrest.

The downgrade led to a widespread decrease in the stock prices of major French banks, with BNP Paribas falling by 0.97% and Credit Agricole decreasing by 0.84%. The Euro Stoxx banking sector dropped by 1.49% on Tuesday, marking it as the worst performer in the broader pan-euro Stoxx 600 index.

This credit downgrade came in the wake of Michel Barnier’s ousting over the rejected 2025 budget proposal, which did not gain support from either the far-right National Rally or the left-wing alliance. Moody’s expressed concern that “France’s public finances will be significantly weakened in the coming years due to political fragmentation, which is likely to hinder effective fiscal consolidation.” The agency also noted that there is a very low likelihood that the next government will manage to sustainably reduce fiscal deficits beyond the upcoming year.

France’s deficit is projected to reach 6.1% of its GDP in 2024, more than double the European Union’s 3% limit. Additionally, the country’s debt has reached an unprecedented €3.228 trillion, equivalent to 112% of its GDP, which ranks as the third highest debt-to-GDP ratio in the eurozone, following Greece and Italy.