High debt and political crisis
Rating agency S&P downgrades France’s credit rating
Within a few weeks, S&P was the second rating agency to downgrade France’s creditworthiness. Which could be expensive for the already heavily indebted country. And is likely to increase the pressure in the budget crisis.
France is deep in a budget crisis. The government under Prime Minister Sébastien Lecornu, who was appointed at the beginning of September, then resigned and is now in office again, is struggling to find a compromise on austerity measures in view of the massive national debt. Given this ongoing political uncertainty, the rating agency S&P has downgraded France’s credit rating. The rating agency is one of the three most influential in the world alongside Moody’s and Fitch.
The credit rating will be lowered to “A+/A-1” from “AA-/A-1+”, S&P announced. France is “currently experiencing the most severe political instability since the founding of the Fifth Republic in 1958,” the rating agency said. President Emmanuel Macron has to cope “without a clear majority” in parliament and “increasing political fragmentation”. And S&P assumes “that political uncertainty will affect the French economy by slowing investment and private consumption and thus economic growth.” At the same time, the consolidation of the heavily indebted national budget is in danger of being delayed because the necessary measures are not being taken.
Highest debt in the EU
Around a month ago, the rating agency Fitch downgraded France’s credit rating – from AA- to A+. The content of the justification was consistent with the motives now cited by S&P. France is a domestically polarized country, with little chance of comprehensive economic reforms and therefore on a tough and lengthy path out of the debt hole.
At around 3.3 trillion euros, France has the highest debt in the European Union. Measured in terms of economic output, the debt ratio is 114 percent, the third highest after Greece and Italy. Government spending is also among the highest in Europe. The downgrade of the credit rating will likely make it more expensive for France to raise money on the capital market through government bonds.
According to S&P estimates, France will probably succeed this year in limiting new debt to 5.4 percent of gross domestic product – and thus at least keeping the level of new debt stable. Nevertheless, the rating agency assumes that France’s debt ratio will rise to 121 percent of gross domestic product by the end of 2028.
government survives Votes of no confidence
At least the French government under Prime Minister Lecornu can now finally begin discussions on a new state budget and the savings targets it contains, after surviving two votes of no confidence in parliament on Thursday. But only at the expense of concessions to the opposition socialists: in order to secure their support, Lecornu canceled the controversial pension reform, which, among other things, had provided for an increase in the retirement age. The savings sought as a result are no longer possible – and must be made possible elsewhere in the budget.
Lecornu’s predecessor in office – François Bayrou – failed due to his austerity ambitions. He had set a savings target of around 44 billion euros for the 2026 budget and wanted to delete around two public holidays. This project was also later canceled by Lecornu. To ensure support for his austerity plans, Bayrou asked parliament for a vote of confidence – and failed. Now Lecornu – now France’s fifth head of government in less than two years – should find a compromise and thus create a bit of political stability, because presidential elections are coming up in France in 2027.
