Moody's Ratings spared France a credit downgrade late Friday, but the agency delivered a bleak assessment of the eurozone's second-largest economy, warning that its intractable politics could paralyze the government just as it confronts record debt and borrowing costs at multi-decade highs.

In an announcement late Friday, Moody's kept France's rating at Aa3—two grades below the United States and three below Germany—with a negative outlook. Ratings from peers Fitch and S&P Global sit one notch lower. Aa3 sits on the fourth-highest rung of Moody's scale, and the negative outlook signals the grade could move lower over the medium term. Ratings like it serve as a widely used gauge of a government's ability and willingness to repay its debts, and the verdict capped a periodic review—the routine process through which the agency reassesses an existing rating.

According to Moody's, France still boasts a wealthy economy and competent public institutions. The threat lies elsewhere: a political landscape that risks immobilizing the government and preventing it from taking the painful steps needed to shrink the deficit.

The report flagged France's divided parliament, which is often at odds with the government, as well as political and social instability. For more than a month, the country has been consumed by protests that erupted into widespread riots last weekend. The demonstrations began when students decried the lack of investment in public education, then widened as others joined to speak out against the high cost of living, with fuel prices soaring due to the U.S. war on Iran. Other European countries have seen similar protests in what has been dubbed the "Oct. 17 Movement."

France's looming debt has meanwhile sent bond yields to their highest levels in 24 years, flashing warning signs not seen since the eurozone debt crisis in 2011, which ultimately forced international rescues for members including Greece, Ireland and Portugal. The country's public debt now stands at a record $4 trillion, or 119% of GDP—the highest ratio since the immediate aftermath of World War II.

The fiscal picture is entangled with an uncertain political future. With far-right and far-left candidates in the lead to become France's next president in the spring, markets are losing confidence that either side will take the difficult steps necessary to restore fiscal order.

A 2027 budget proposal that would modestly bring the deficit down to 5% of GDP from 5.4% is on the table but has yet to pass amid political gridlock, and Moody's warned that recent unrest could constrain fiscal consolidation efforts.

"The 2027 budget process coincides with some of the most extensive social protests France has experienced in many years," the agency said.

Moody's expects the budget to eventually be adopted, but possibly by decree—a mechanism that allows legislation to be adopted without a vote in parliament—as the National Assembly dithers. Even then, the budget will likely achieve less than hoped, reducing the deficit to only 5.2% of GDP, owing to weaker GDP growth than the government projected and the political challenges of implementing real spending cuts.

That too-little, too-late budget will not mark the end of France's debt woes. Moody's said a "significant and sustained fiscal effort" is required beyond the presidential elections to stabilize the debt burden, which is on track to hit 122% of GDP next year. The agency is not confident that France's leaders will meet the challenge.

"While we expect that the next president and government will seek to continue to narrow France's deficit, our baseline expectation is that they are unlikely to be able to implement rapid fiscal consolidation in light of social tensions, a political environment that is likely to remain fragmented and muted GDP growth," Moody's predicted. "As a result, the debt burden will continue to rise through the remainder of the decade."

There is still some breathing room. Moody's pointed out that the average maturity of France's debt is around 8.5 years, meaning the recent surge in borrowing costs would have to persist over an extended period to meaningfully worsen debt affordability. Even so, the agency said France is especially vulnerable to "event risk" driven by geopolitics as well as domestic politics and instability, describing a situation in which lawmakers will struggle to tackle the most pressing problems.

"The negative outlook reflects the increased risk that the fragmentation of France's political landscape will continue to impair the functioning of the country's legislative institutions," the report said. "This political instability, also visible in the current social tensions, risks hampering the French government's ability to address key policy challenges such as an elevated fiscal deficit, rising debt burden, and durable increase in borrowing costs, thus leading to a more rapid weakening in the sovereign's key credit metrics than we currently expect."

Analysts at Macquarie have drawn a similar connection between the French debt crisis and the unrest. In a note earlier this month, global strategists Thierry Wizman and Gareth Berry warned that the longer the protests go on, the more likely it becomes that the government will cave and approve more spending, worsening the debt situation. That, in turn, would drive up yields on French bonds, making the borrowing needed to fund that spending even more expensive—and deepening the very problem the rioters are complaining about.

"France is veering toward a full-blown civil crisis because of its political polarization, which heretofore had been manifested mainly in the political realm itself, and at the ballot box only," they wrote. "And rather than being isolated events, we think a direct and self-reinforcing causal connection can be drawn between the rise in France's debt yields and the street riots of the past few days."

From here, the markers to watch are clear: whether the 2027 budget clears the National Assembly or is adopted by decree, and how the spring presidential race reshapes the fragmented political landscape Moody's flagged as the central risk to France's credit metrics.

This story was originally featured on Fortune.com.