French banking stocks fell after Moody’s downgrade on seven banks’ ratings amid the ongoing political turmoil. Both French government bonds and its stock markets experienced selloffs due to souring investment sentiment, Report informs via Euronews.
Moody’s cut the ratings of seven French banks just days after downgrading France’s credit score, as the country grapples with prolonged political instability. The move caused a broad-based fall in French big banks’ stocks, with BNP Paribas down 0.97%, and Credit Agricole falling 0.84%. The Euro Stoxx banking sector slumped 1.49% on Tuesday, making it the biggest laggard in the pan-euro Stoxx 600 index.
The credit downgrade followed the ousting of Michel Barnier over the 2025 budget proposal, which faced rejection from both the far-right National Rally and the left-wing alliance. The rating firm stated: “France’s public finances will be substantially weakened over the coming years, because political fragmentation is more likely to impede meaningful fiscal consolidation,” and “there is now very low probability that the next government will sustainably reduce the size of fiscal deficits beyond next year.”
France’s deficit level climbs to 6.1% of its Gross Domestic Product (GDP) in 2024, more than double the European Union’s threshold of 3%. The country’s debt hit a record of €3.228 trillion, or 112% of the GDP, which is the third highest ratio in the eurozone, after Greece and Italy.
Barnier’s budget plan, which aimed to lower the deficit to 5% in 2025, was met with fierce opposition by the far-right National Rally and the left-wing alliance. On Monday, the French National Assembly approved a special law to temporarily avoid a US-style government shutdown by allowing tax-raising and government spending to roll over. However, the absence of a full 2024 budget plan leaves newly appointed Prime Minister François Bayrou facing the same challenges that ousted his predecessor.
In May, S&P Global Ratings downgraded France’s credit score from AA to AA-, forecasting a deficit level of 3% of GDP until 2027. On Saturday, Moody’s ratings agency downgraded France’s credit score to Aa3 from aa2. Fitch has also cut France’s government bond ratings previously.