After warnings from Moody’s adn Fitch, on Friday 29 November the rating agency S&P Global Ratings (formerly Standard & Poor’s) decided to maintain France’s sovereign debt rating at AA− and the stable outlook, while the government multiplies compromises to try to escape a motion of censure, which could intervene as early as next week on the social security budget and, according to the executive, plunge France into a ” storm “ economic and financial.
“Despite the political uncertainty,we expect France to respect – with a delay – the European fiscal framework and gradually consolidate its public finances in the medium term”the US agency said in a press release.
The rating agency’s decision reflects the “credit given to the government” by Michel Barnier, said French economy Minister Antoine Armand.“By maintaining France’s rating, Standard and Poor’s demonstrates the credit granted to the government to reduce the deficit and restore our public finances. The agency, though, highlights the risk associated with political uncertainty that would challenge this trajectory.he underlined in a written reaction sent to the press.
In May the American rating agency lowered the French rating by one notch, from AA to AA−, with a stable outlook, reducing the risks of a further downgrade in the immediate future. In October Moody’s and Fitch maintained the French rating with a negative outlook.After the decline in pensions and employers’ contributions, the government agreed not to increase the electricity tax beyond its pre-tariff shield level, to satisfy the National Rally (RN), which threatens to ally itself with the left to overturn it.
For François Villeroy de Galhau the budget project goes “in the right direction”
Despite these “adjustments” made to the budget project, which initially envisaged an effort of 60 billion euros in 2025, assured the Prime minister “everything to stay around 5%” public deficit in relation to gross domestic product (GDP), after a forecast slide to 6.1% in 2024. France would return below the European ceiling of 3% in 2029, a trajectory validated by Brussels.
and politically the risk remains. On Friday the leader of the RN, Marine Le Pen, did not seem willing to give up on censoring the government next week, accusing it of concessions “not financed by structural economies” and of “precipitate the financial crisis”.
The governor of the Bank of France, François villeroy de Galhau, warned this on friday “take back control” of public finances was his duty “national interest” so as not to increase the cost of debt. The government’s draft budget will do this “in the right direction”according to him.
This political uncertainty, which has persisted since the dissolution of the National Assembly in June, is shaking the markets. The gap (diffusion) between french and German 10-year sovereign rates, considered a safe haven in Europe, hit a 2012 high earlier this week. France’s borrowing rate is higher than those of Spain and Portugal, and for the first time on Wednesday briefly surpassed that of Greece, a country that had come close to bankruptcy.
How does political stability influence economic reform and investor confidence?
Interview between Time.news Editor and Economic Expert
Editor: Good afternoon, and welcome to another engaging discussion here at Time.news. Today, we have the pleasure of speaking with Dr. Claire Dufresne, an economic analyst with extensive experiance in public finance and sovereign debt ratings. Dr. Dufresne, thank you for joining us.
Dr. Dufresne: Thank you for having me. It’s a pleasure to be here.
Editor: Let’s dive right in. Recently, S&P Global Ratings decided to maintain France’s sovereign debt rating at AA− with a stable outlook, despite the ongoing political turbulence over the social security budget. What do you think this decision signifies in terms of France’s economic stability?
Dr. Dufresne: The decision by S&P is quite meaningful. Maintaining the AA− rating suggests that the agency still has confidence in france’s ability to manage its public finances, despite the political uncertainties. It indicates that,at least in the medium term,they believe France will eventually adhere to the European fiscal framework and work towards consolidating its finances.
Editor: That’s an critically important point. However,S&P has also highlighted the risks posed by political uncertainty. In your expert opinion, how might this uncertainty impact the government’s ability to implement necessary reforms?
Dr.Dufresne: The political landscape in France is quite volatile right now. The possibility of a motion of censure from the opposition could undermine the government’s capacity to pass crucial reforms. If the government cannot stabilize its position,it may struggle to maintain the fiscal discipline that agencies like S&P are expecting. Political instability can create a delay in implementing policies needed to reduce the deficit or restore public finances.
Editor: You mentioned the potential for a motion of censure. The government has already made some compromises to avoid this—how does this kind of maneuvering affect investor confidence?
dr. Dufresne: Compromise is a double-edged sword. While it can prevent immediate crises,excessive compromise may signal weakness or indecisiveness,which could eventually erode investor confidence. If investors perceive that the government is yielding on critical economic reforms just to maintain power, it could lead to apprehension about France’s long-term fiscal health.
Editor: S&P’s report also praised the work of French Economy Minister Antoine Armand, who emphasized the government’s efforts to tackle the deficit. How do you see the role of strong leadership in navigating these turbulent waters?
Dr. Dufresne: Strong leadership is vital in times of economic and political uncertainty. A leader like armand, who can effectively communicate commitment to fiscal responsibility while addressing the public’s concerns, is essential. Openness and decisive actions can either bolster or undermine public trust and, consequently, investor confidence. If the government can strike a careful balance between reform and societal needs, it will likely benefit all stakeholders involved.
Editor: Lastly, Dr. Dufresne, looking forward, what are the key factors to watch in the coming months that could influence France’s economic trajectory?
Dr.Dufresne: The key factors to monitor include the outcome of political maneuvers, especially the potential censure motion, the government’s fiscal policy decisions, the state of public protests or unrest, and economic indicators such as inflation, unemployment, and growth rates. Any shifts in these areas could either bolster or jeopardize the current rating and economic outlook for France.
Editor: Thank you, Dr. Dufresne, for sharing your insights today. It’s clear that while the current rating is a sign of confidence, the path ahead is fraught with challenges. We appreciate your expertise and look forward to seeing how this situation unfolds.
Dr. Dufresne: Thank you for having me. It’s a crucial time for France, and I hope to see positive developments soon.