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French snap elections raise credit risk: Moody’s

"French snap elections raise credit risk: Moody's
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Ratings agency Moody’s has warned that the snap elections called by President Emmanuel Macron could lower France’s credit score because it raises the risk of “political instability”.

Macron decided to dissolve the National Assembly and hold legislative elections after the far-right triumphed over his centrist group in Sunday’s European Parliament elections.

The first round will take place on June 30 and the run-off on July 7.

“This snap election increases the risks to fiscal consolidation” and is “credit negative” for its rating, Moody’s said in a statement late on Monday.

“Given the polarized political environment in France, the winner of these elections is unlikely to have an absolute majority” in parliament, the agency said.

Moody’s said the next legislature could hold no-confidence motions against the government.

“There is a high risk of greater political instability in the future, especially as the NA (National Assembly) cannot be dissolved within the first year of its term,” it said.

“Potential political instability is a credit risk given the challenging fiscal picture the next government will inherit,” it added.

France was already under pressure from ratings agencies to cut its huge debt and growing public deficit prior to the European elections.

The government has announced 10 billion euros ($10.8 billion) in emergency spending cuts for this year.

While Moody’s has maintained France’s sovereign rating at “Aa2” with a stable outlook, Standard and Poor’s downgraded it earlier this month after a similar decision by Fitch last year.

The government has insisted it will keep its goal of lowering the budget deficit to the European Union limit of three percent of gross domestic product in 2027, the same year as the next presidential election.

“Given the fluid political landscape, it is also quite possible that these targets could fall by the wayside in spite of likely pressure from the European Commission for France to formulate fiscal policy that is consistent with the EU’s new fiscal rules,” Moody’s said.

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AFP

Agence France-Presse (AFP) is a French international news agency headquartered in Paris, France. Founded in 1835 as Havas, it is the world's oldest news agency.







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