Fall of govt leaves France without clear path to cutting deficit: S&P

The fall of France's government leaves the country without a clear path towards reducing its fiscal deficit and the most likely outcome is less belt-tightening than previously planned, credit rating agency Standard and Poor's (S&P) said on Thursday. 

Michel Barnier was set to hand in his resignation and become the shortest serving prime minister in modern France after far-right and leftist lawmakers voted to topple his government. 

 

Opposition lawmakers earlier this week had rejected part of his minority government's 2025 budget despite numerous concessions that would have softened the 60-billion-euro belt-tightening package. 

S&P said the most likely scenario now was for emergency stopgap legislation to be passed, rolling over the 2024 spending limits and tax provisions into 2025 until a more permanent annual budget can be approved. 

If that legislation gets rejected in parliament, then President Emmanuel Macron could adopt exceptional budget measures, bypassing parliament to avoid a U.S.-style government shutdown, S&P added. 

"Under most of these scenarios, we would expect considerably less budgetary consolidation than implied by the measures -including new taxes — proposed by the former government," S&P said in a statement. 

Rival ratings agency Moody's said on Wednesday that the collapse of France's government was negative for its credit rating and added to the risks of a bigger debt burden than it had previously expected. 

Moody's gave its AA2 rating on French government debt a negative outlook in October and S&P left its AA- rating unchanged on Friday in its last review.   

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