To everyone’s surprise and to the government’s great relief,the American agency maintained the French debt rating at “AA-“,with a “stable” outlook. An unexpected choice in an unstable political and budgetary context.
French debt drama.Against all expectations, the American agency Standard & Poor’s kept the rating unchanged, leaving it inside «AA-»prospect “stable”. «Despite political uncertainty, we expect France to respect, with a delay, the European fiscal framework and gradually consolidate its public finances in the medium term“, indicated the American agency in a press release. This maintenance of the rating demonstrates the “credit granted to the government to reduce the deficit and restore our public finances», greeted Antoine Armand, Minister of Economy. “The agency,however,highlights the risk associated with political uncertainty that would challenge this trajectory»,Specifies Bercy in his press release.
Friday’s announcement comes as a surprise, given that the other three agencies (Fitch, Moody’s and scope Ratings) have all lowered their ratings of French sovereign debt this autumn. A correction the minimum and viewpoint “negative” would have been received without surprise. However, S&P chose to maintain its rating from last May, when it raised it «AA» ha «AA-». The agency then sanctioned the “deterioration of the budgetary position” of the country. “France’s budget deficit in 2023 was considerably higher than we expected”had justified the American society,doubting that the deficit could return below 3% of GDP by 2027. A few days later, Emmanuel Macron announced the dissolution of the National Assembly. The postponement of the 2024 deficit was then confirmed, going from 5.1% to 6.1% (compared to the 4.4% initially expected). So many negatives that could have led S&P to be less forgiving.
Debt peak in 2027
The new Barnier government has made budget recovery its central mission, with an initial goal of 60 billion euros in savings, to return to deficit “about 5%”. By dint of concessions to obtain the vote of political allies and the RN, and thus avoid censorship, this objective seems very difficult to maintain. “Agencies need to know that the French government is serious and methodical and that we will do what we say”however, the Prime Minister assured in an interview given to Figaro . Michel Barnier mentioned in passing that the European Commission had approved the multi-year budget trajectory supported by France earlier in the week. This projects the debt to reach its peak in 2027, at 116.5%, before finally starting its decline. The deficit, for its part, would return below 3% in 2029.
This trajectory, not giving the impression of giving in to excessive optimism, problably weighed on Standard & Poor’s decision to grant France a reprieve. Moreover, the rating agency does not align itself with the markets’ concerns: the interest rate at which the French state borrows for 10 years briefly exceeded that of Greece, reaching 3.05% on Wednesday, meaning that investors considered it equally risky to grant loans in Athens as in Paris… While awaiting the ax from S&P, the French rate returned to 2.9% this Friday.
French debt, though, is not safe from a downgrade to “A” category. “It will take three green lights to avoid a rating downgrade within three to four months or during the next official spring reviewwarns Norbert Gaillard, economist and autonomous consultant: that the government remains in office, that it presents a coherent budget for 2025 and that results in a significant and credible reduction in the deficit for next year. For the executive, faced with a National Assembly in turmoil, the battle on debt is still far from won.
What factors contributed to Standard & Poor’s decision to maintain France’s “AA-” debt rating despite political instability?
Interview between Time.news Editor and Economic expert
Time.news Editor: Welcome, everyone! Today, we have a special guest, Dr.Emily Martin,an expert in international finance and economic policy. we’re discussing the recent decision by Standard & Poor’s to maintain france’s debt rating at “AA-“ with a stable outlook. Dr. Martin, thank you for joining us!
Dr.Emily Martin: Thank you for having me! It’s a pleasure to discuss such an unexpected yet significant advancement in Europe.
Editor: To start,could you elaborate on why this decision surprised many observers,especially given the current political and budgetary instability in France?
Dr. Martin: Absolutely. The decision was unexpected primarily because France is facing considerable challenges, both politically and in terms of fiscal policy. Political uncertainty often leads to concerns about a country’s ability to manage its finances effectively.In France,recent events have raised questions about leadership stability and policy direction,which typically makes rating agencies cautious.
Editor: Indeed, the French debt landscape has been quite tumultuous. How does maintaining the “AA-” rating impact France’s economic prospects?
Dr. Martin: Maintaining this rating sends a positive signal to investors and financial markets. It suggests that, despite the turbulence, France remains a relatively safe investment compared to other countries. This can help lower borrowing costs for the government and promote confidence among investors, which is crucial for economic growth.
Editor: Standard & Poor’s mentioned the expectation that France will respect the European fiscal framework “with a delay.” What does this mean for the country’s financial policies?
Dr. Martin: This statement implies that while there might potentially be slow compliance with the EU’s fiscal rules, there’s still an inherent belief that France will get its financial house in order. It suggests that the agency is willing to take a longer-term view, positing that France will gradually consolidate its public finances. This could involve difficult policy choices in the coming years, but the expectation of eventual compliance is critical.
Editor: Could you discuss the implications of the stable outlook? How does that effect investor sentiment and the broader European economic landscape?
Dr. Martin: A “stable” outlook means that, barring any significant upheaval, the current rating is likely to remain unchanged in the near future. This stability can enhance investor confidence not only in French securities but also in the Eurozone as a whole, as France is one of its largest economies. If investors see stability in France, they may be more inclined to invest in other European markets, creating a positive ripple effect across the region.
Editor: That’s a very insightful perspective! As we look ahead, what challenges do you think France must address to maintain this favorable rating?
Dr. Martin: France needs to manage its public debt effectively while ensuring sustainable economic growth. Addressing structural reforms, such as labor market adaptability and pension reform, will be essential. Additionally, navigating political dynamics and maintaining stability will play a crucial role in appeasing both the markets and rating agencies.
Editor: Thank you, Dr. Martin, for your valuable insights on this crucial topic. It’s interesting to see how financial ratings can influence national policy and economic stability. We appreciate your time today!
Dr. Martin: Thank you! It’s been a pleasure discussing these crucial issues with you.