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France’s debt was downgraded by a second rating agency in the space of a week, underscoring doubts the country can deliver on promises to tame its debt during a period of political instability.

Morningstar DBRS demoted France’s long-term issuer rating to AA from AA (high) and changed the trend to stable from negative late on Friday. It came a week after Fitch also reduced its rating for the country’s sovereign debt. 

France’s minority government collapsed in a confidence vote on support for deficit cutting measures in the 2026 budget earlier this month.

Sébastien Lecornu, formerly defence minister, was picked by President Emmanuel Macron to try to form a new government in a fractured parliament where no group holds a clear majority. 

Macron called and lost snap legislative elections last summer, deepening the political instability. Lecornu is the fifth prime minister of Macron’s second term, and is expected to try to broker a compromise with leftwing lawmakers in order to pass a budget. 

Morningstar “considers that this political environment and the increased government instability constrain the effectiveness of fiscal policy settings”. It added: “In this context, [we] view high execution risks regarding France’s capacity to deliver on its fiscal targets in the coming years.”

France posted the largest fiscal deficit of the Eurozone in 2024 and is likely to do so again in 2025, according to Morningstar, even if it meets its own target of 5.4 per cent of GDP — far above the EU’s 3 per cent limit.

The country is already in an excessive deficit procedure with Brussels for breaking the bloc’s fiscal rules. France blew past its deficit forecasts last year because of lower than expected tax revenues in 2023 and higher public spending.

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Former prime minister François Bayrou presented a €44bn package of tax rises and budget cuts for the 2026 exercise, but it was voted down by leftwing and far-right opposition parties. Lecornu’s measures will probably be less ambitious, Morningstar noted. 

The political impasse sent France’s borrowing costs near to their highest level since the Eurozone debt crisis more than a decade ago.

Despite these challenges, France has the advantage of a “large, diversified and resilient” economy as well as strong governance and institutions, the rating agency noted.

An improvement in France’s fiscal position could lead to an upgrade, it added. However, it could be downgraded again if no improvement in the country’s fiscal imbalances is recorded over the medium term.

“All else equal, Morningstar DBRS could lower the credit ratings if France’s debt-to-GDP ratio continues rising on a sustained basis towards 125 per cent, and particularly if combined with a materially heavier interest burden,” it wrote.