Francois Bayrou, France's incoming prime minister, during the handover ceremony at the Hotel Matignon in Paris, France, on Friday, Dec. 13, 2024.
Within hours of being appointed, France's new prime minister Francois Bayrou faced his first upset: the country's credit rating was downgraded by credit rating agency Moody's.
The agency announced on Saturday that it was cutting France's rating to "Aa3" from "Aa2" with a stable outlook, citing concerns over "political fragmentation."
Paris is in the midst of a political whirlwind, with disagreements over tax and spending plans bringing down the last government after just three months in power.
Moody's said the divisions would harm attempts to fix France's budget deficit and debt, adding that the country's public finances will be "substantially weakened over the coming years."
"This is because political fragmentation is more likely to impede meaningful fiscal consolidation ... Looking ahead, there is now very low probability that the next government will sustainably reduce the size of fiscal deficits beyond next year," the rating agency said in a statement.
Traders have reacted negatively to the downgrade, with France's CAC 40 down 0.7% Monday morning. Meanwhile, the yield on the country's benchmark 10-year bond was trading at 3.03%, only a little below that of its Greek counterpart, at 3.09%.
Late last month, the difference in yields on the French and Greek 10-year government bonds fell to zero as investors demanded the same interest for holding French debt as that of historically-troubled Greece's -- indicating the extent of concerns over the former's political turmoil.
Uncertainty has gripped France since the summer when indecisive parliamentary elections saw both the left- and right-wing political blocs perform well. Despite that, French President Emmanuel Macron installed conservative Michel Barnier as prime minister, prompting consternation among opposition parties on both sides of the political spectrum.
Barnier's government proved to be short-lived, lasting just three months before being toppled in a vote of no confidence at the start of December after French lawmakers rejected his government's 2025 budget plans that included billions of euros' worth of tax hikes and public spending cuts.
Under pressure to appoint a successor quickly, Macron named his centrist ally Bayrou prime minister on Friday.
Bayrou, 73, is the leader of the Democratic Movement party and a political veteran from the center ground who has advocated for France to address its growing debt pile -- seen at around 112% of gross domestic product in 2024 -- and its yawning budget deficit, expected to hit 6.1% this year, even before they were problematic.