theRatings agency S&P maintained France‘s rating at “AA-” and its outlook at stable on Friday, highlighting the government’s efforts to reduce the public deficit despite political instability.
“Despite the political uncertainty, we expect France to respect, with some delay, the European budgetary framework and gradually consolidate its public finances in the medium term,” the American agency saeid in a press release, underlining the nature “open” and “diversified” of France. ” of the French economy.
While maintaining the stable outlook means the rating is unlikely to move in the near future,S&P does not rule out a downgrade “if the government proves unable to reduce its large public deficit or if economic growth falls below of ours”. projections for a long period.
“The risk associated with political uncertainty”
The French Economy Minister, Antoine Armand, welcomed S&P’s decision, wich according to him “demonstrates the credit granted to the government to reduce the deficit and restore our public finances”. “The agency, however, highlights the risk associated with political uncertainty that would challenge this trajectory,” it added in a written reaction sent to the press.
S&P’s decision, which downgraded France’s credit rating in May, comes as France’s minority government is ramping up its compromises to try to escape a censure motion, which could be tabled as early as next week on the social security budget. if he will use 49.3 to have it adopted without a vote.
The government has agreed not to increase the electricity tax beyond the pre-tariff shield level, to satisfy the National Rally (RN) which is threatening to ally with the left to overthrow it.
Reduce the deficit to 5%
Despite the “adjustments” made to the budget project, which envisages an effort of 60 billion euros in 2025, Prime Minister Michel Barnier assured that he will do “everything possible to remain around 5%” of the public deficit in relation to GDP , after an expected 6.1% slide in 2024. France would return under the European ceiling of 3% in 2029, a trajectory validated by Brussels.
RN leader Marine Le Pen, tho, on Friday appeared unwilling to give up on censuring the government next week, accusing it of concessions “not financed by the structural economies” and of “precipitating the financial crisis”.
In October Moody’s and Fitch maintained the French rating with a negative outlook.
What factors contribute to France maintaining its AA- credit rating despite political instability?
Interview: Analyzing France’s AA- Credit Rating with Economic Expert Dr. Claire dubois
Editor: Welcome,Dr. Dubois. With S&P maintaining France’s credit rating at “AA-” and a stable outlook despite political instability,what does this mean for the French economy?
Dr. Dubois: Thank you for having me. S&P’s decision signals confidence in the French government’s efforts to reduce public deficit, which is crucial given the country’s current political climate. The agency’s acknowledgment of France’s “open” and “diversified” economy suggests that there is potential for resilience amidst uncertainty.
Editor: You mentioned political stability. How important is it in influencing credit ratings and investor confidence?
dr.Dubois: Political stability plays a vital role in economic governance. The S&P report highlights the risks tied to political uncertainty, which could impede the government’s ability to streamline fiscal reforms. If the current administration struggles to enact necessary measures, we could see a downgrade in the future. Investor confidence often hinges on predictable governance, especially when it comes to fiscal policies.
editor: Considering this rating, what are the implications for public finances and the proposed budget adjustments?
Dr. Dubois: The government aims to reduce the public deficit to 5% of GDP by 2025, following an anticipated 6.1% in 2024. While this trajectory has been validated by Brussels, achieving it will require stringent fiscal discipline and effective political negotiations. The adjustments of €60 billion in the budget project underscore the seriousness of addressing the deficit, but external pressures from parties like the National Rally pose challenges.
Editor: Speaking of challenges, Prime Minister Michel Barnier has claimed he will do everything to maintain the deficit around 5%. What strategies might the government employ?
Dr. Dubois: The government will likely have to employ a mix of spending cuts and revenue-raising measures. This could include revising tax policies and optimizing public expenditure. Compromises are essential, especially in reaching accords with opposition parties to secure legislative support. Transparent dialog about the benefits of these adjustments will also be crucial to gaining public trust.
Editor: With fairness in mind, how should readers interpret Marine Le Pen’s criticisms regarding government concessions?
dr. dubois: Le Pen’s concerns reflect a broader anxiety about structural adjustments not being financed sustainably. It’s critical for the government to articulate how it plans to manage these concessions without jeopardizing fiscal health. Openness regarding public finance management, alongside reassurance that reforms are designed to foster long-term stability, will be paramount in addressing such criticisms.
Editor: what practical advice can you give to investors watching the situation in France?
Dr. Dubois: Investors should keep an eye on upcoming legislative developments that may either bolster or hinder the government’s ability to adhere to its fiscal targets. It’s vital to diversify investments to mitigate potential risks arising from political uncertainties. Additionally, monitoring international economic trends can provide insights into how external factors might impact France’s economic landscape and, by extension, its credit rating.
Editor: Thank you, Dr. Dubois, for your insights on france’s economic outlook following S&P’s rating decision. Your analysis provides valuable context for understanding the implications of political dynamics on public finance.
Dr. dubois: It’s my pleasure.Keeping informed about these evolving factors will be key for policymakers and investors alike.