Why does Moody’s rate France above Israel? The economic gap deserves scrutiny – opinion

Moody’s decision to keep France’s credit rating well above Israel’s raises a question: How much weight does the agency put on each country’s economic performance?

The US-based credit rating agency affirmed France’s sovereign rating at Aa3 over the weekend. Israel remains at Baa1, four notches lower. Both ratings are investment grade, meaning they fall within the categories generally considered suitable for mainstream institutional investment. The difference nevertheless signals that Moody’s considers lending to France substantially safer.

Sovereign credit ratings assess a government’s ability and willingness to repay its debt. They can influence borrowing costs and determine which investors are permitted to buy a country’s bonds.

Such assessments necessarily extend beyond a comparison of growth and debt figures. War, political stability, institutions, and access to financing all matter. Even so, the contrast between the French and Israeli economies deserves closer scrutiny.

Moody’s first downgraded Israel from A1 to A2 in February 2024, roughly four months after the Hamas-led October 7, 2023, attack triggered the war in Gaza. In September 2024, it cut Israel’s rating another two notches to Baa1, where it has remained.

Israel’s economy has nevertheless demonstrated considerable resilience, acknowledged in assessments by the International Monetary Fund, the international institution that monitors economies and provides financial assistance to member countries.

France, meanwhile, has struggled with weak growth, substantial budget deficits, and political resistance to efforts to repair its public finances. Protests and unrest have added to the pressure on its government.

The question is whether the size of the ratings gap adequately reflects those competing realities.

A substantial gap in growth, debt

Consider economic output per person, a widely used measure of a country’s average prosperity.

According to the IMF figures cited here, Israel’s nominal GDP per capita is expected to reach approximately $72,400 in 2026, compared with about $51,400 in France. These figures measure output in current US dollars and are influenced by exchange rates; they do not directly measure household income or purchasing power.

The growth forecasts also differ sharply. The IMF projects Israeli economic growth of approximately 4.5% this year, while the Bank of Israel, the country’s central bank, forecasts 5.6%.

France’s economy is expected to expand by approximately 0.4%, according to both the IMF and the Banque de France, the French central bank.

Rapid growth after a wartime slowdown requires context. Some of that expansion can reflect the recovery of activity lost during the conflict. Still, growth strengthens a government’s tax base and can make its debt easier to manage. Prolonged stagnation makes those tasks harder.

The debt comparison is particularly striking.

France’s public debt stands at approximately 118.5% of its annual economic output and is approaching 120%. Israel’s debt-to-GDP ratio is approximately 68.6%.

In practical terms, France owes more than the value of everything its economy produces in a year. Israel’s debt amounts to roughly two-thirds of its annual output.

Neither figure alone determines whether a country can repay its creditors. Financing costs, the maturity of outstanding debt, and investor confidence also matter. Nevertheless, the difference is substantial.

France’s budget deficit, the gap between government spending and revenue, exceeds 5% of GDP. Israel’s reported deficit stood at approximately 3.2% as of September.

These figures raise a reasonable question about how Moody’s weighs France’s fiscal vulnerabilities against Israel’s security risks.

How much confidence should promises command?

In affirming France’s rating, Moody’s cited plans for €52 billion in spending cuts.

Delivering those savings requires political support. French governments have faced sustained opposition to pension changes, spending restraint, and other measures intended to stabilize public finances.

France enacted a pension reform in 2023 that provided for a gradual increase in the retirement age from 62 to 64. Subsequent legislation suspended the increases until 2028, illustrating the difficulty of sustaining politically contentious reforms.

A credit assessment must therefore consider the likelihood that promised savings will materialize, as well as the government’s stated intentions.

Labor-market conditions offer another point of comparison. The figures cited here put French unemployment above 8.4%, compared with approximately 2.8% in Israel.

Israel’s low unemployment rate suggests a tight labor market, although wartime labor shortages and military reserve service complicate the picture. Its economy has shown an ability to adapt under extraordinary pressure. That capacity should carry meaningful weight in any assessment of its creditworthiness.

France also benefits from its membership in the eurozone, the group of countries using the euro. Its access to a large common-currency financial market is relevant to its ability to finance debt and helps explain why a simple comparison of national economic indicators cannot tell the whole story.

The issue is how these advantages and vulnerabilities are balanced.

What bond markets can tell us

Government bond yields provide another perspective. They show the return investors demand to lend money to a state.

The figures cited here put the yield on French 10-year government bonds at 5.05%, compared with approximately 4.06%-4.18% for Israeli bonds of the same maturity.

That comparison requires care. French government bonds are generally denominated in euros, while the Israeli domestic benchmark is denominated in shekels. Their yields reflect different interest-rate and inflation expectations, alongside credit risk and other factors.

The yield gap alone therefore cannot establish that investors consider France more likely to default. A stronger comparison would examine borrowing costs on a comparable currency basis or other market measures of sovereign credit risk.

Even with those qualifications, Israel’s economic resilience and France’s fiscal difficulties warrant a fuller explanation of the ratings gap.

Moody’s may reasonably place considerable weight on Israel’s exposure to war and regional instability. It should also explain clearly how it weighs those risks against Israel’s lower debt burden, stronger growth prospects, and demonstrated capacity to withstand disruption.

Credit ratings carry practical consequences for governments, businesses, and taxpayers. A four-notch difference deserves an explanation grounded in evidence that investors and the public can examine.