France is facing a political and financial crossroads after Moody’s Ratings cut the country’s credit outlook to negative on October 24, 2025, citing the growing risk that a fractured political landscape is undermining the government’s ability to manage a ballooning deficit and rising debt. The move comes as parliament is locked in a fierce battle over a new budget, with deep divisions over how to tax the nation’s wealthiest citizens and avoid what some warn could become an economic meltdown.
Moody’s, one of the world’s top credit rating agencies, didn’t mince words in its Friday statement. According to Moody’s, “The decision to change the outlook to negative reflects the increased risk that the fragmentation of the country’s political landscape will continue to impair the functioning of France’s legislative institutions.” The agency warned that this instability could hamper the government’s ability to tackle key policy challenges, including the country’s “elevated fiscal deficit, rising debt burden, and durable increase in borrowing costs.”
France’s political system has been in turmoil since President Emmanuel Macron’s centrist alliance lost its majority in snap parliamentary elections last year. The result? A hung National Assembly, a weakened minority government, and a legislative process mired in gridlock. Prime Minister Sebastien Lecornu, appointed by Macron after his two predecessors were toppled over cost-cutting measures, now faces the daunting task of passing an austerity budget through a fractured parliament by the end of the year.
The stakes couldn’t be higher. On the same day as the Moody’s downgrade, the finance committee of France’s National Assembly approved a controversial proposal for a US-style tax targeting wealthy citizens who move abroad to escape France’s high tax rates. The measure, championed by the hard-left France Unbowed party, would force French nationals earning more than €235,500 (about £205,356) who relocate to countries where the tax rate is at least 40% lower than France’s to continue paying French taxes for a decade after leaving. To be eligible, taxpayers must have spent at least three of the last ten years in France.
This so-called ‘targeted universal tax’ is just one of several radical ideas on the table as lawmakers scramble for ways to shore up public finances. The proposal is aimed squarely at the ultra-wealthy—those who, in the words of Socialist party leader Olivier Faure, “need to be taxed, along with mega-inheritances.” Faure made it clear that his party’s support for the government hinges on the inclusion of a levy on the super-rich: “If there is no progress by Monday, it will be over,” he warned, threatening to vote down Lecornu’s government if their demands are not met.
The left’s push for higher taxes on the wealthy has gained momentum amid growing public frustration over inequality. Faure pointed to French billionaire Bernard Arnault—one of the world’s ten richest people—whose fortune reportedly jumped by $19 billion overnight last week, as a prime example of the need for tougher measures. Arnault, who owns about half of luxury conglomerate LVMH (the parent company of Louis Vuitton and Dom Perignon), has become a lightning rod for critics of France’s tax system.
French economist Gabriel Zucman, whose work has inspired the so-called ‘Zucman tax,’ estimates that a minimum 2% annual tax on fortunes of €100 million or more could raise around €20 billion (about £17.5 billion) a year from just 1,800 households. The left is pushing for parliament to debate this proposal on Saturday, hoping to force the government’s hand. “We need to tax the ultra-rich and mega-inheritances,” Faure reiterated, underscoring the urgency of the moment.
But not everyone is on board. The government, along with the far right, opposes taxing professional assets—the core of the Zucman tax plan. Instead, the administration has floated a more modest proposal to tax wealth management holdings with at least €5 million in assets, which it expects would bring in €1 billion from about 10,000 taxpayers. For some, this is a pragmatic compromise; for others, it’s simply not enough.
The budget battle has brought France’s political divisions into sharp relief. Earlier this week, a parliamentary commission rejected the government’s proposed budget by a lopsided vote of 37 to 11. The Socialists, acting as a swing group in the hung assembly, have made clear that their support is conditional on tougher action against the rich. Meanwhile, Prime Minister Lecornu has tried to keep his fragile coalition together by suspending an unpopular pension reform earlier this month—a move that helped him survive a confidence vote with Socialist backing.
Lecornu has also pledged not to use a constitutional loophole that would allow him to ram the budget bill into law without a parliamentary vote, a tactic employed in previous years. This decision, while democratic, leaves the government vulnerable to defeat if it cannot muster enough support in the chamber. And with the Socialists threatening to pull the plug, the outcome is anything but certain.
Public sentiment, too, is running high. Recent protests—some under the banner “Let’s Block Everything”—have brought thousands to the streets, with demonstrators demanding President Macron’s resignation and holding signs that read “Radical.” The unrest reflects deep-seated anxieties about the direction of the country, as well as frustration with a political class seen as out of touch with ordinary citizens.
France’s current predicament is the result of years of mounting fiscal pressures and political miscalculations. Macron’s decision to call early elections last year, intended to solidify his grip on power, instead backfired spectacularly. His centrist bloc lost its majority, while the far right gained ground, leaving the government unable to enact major reforms without support from rival factions. The result has been legislative paralysis and a growing sense of crisis.
For now, all eyes are on the National Assembly, where lawmakers are set to debate the budget and the possible inclusion of the Zucman tax. The outcome will determine not just the fate of Lecornu’s government, but also the country’s ability to address its fiscal challenges and restore investor confidence.
As Moody’s stark warning makes clear, the world is watching. The next few days could prove decisive for France’s political future—and for the stability of one of Europe’s largest economies.
