Another warning sign for France’s government: The rating agency Standard & Poor’s (S&P) has downgraded the heavily indebted country’s creditworthiness from “AA-” to “A+”.
Although a draft budget was recently submitted, uncertainty remains, S&P justified the move on Friday evening. Due to the poorer rating, the interest burden on newly issued government bonds can increase.
Finance Minister Roland Lescure interpreted the rating decision as a “call for clarity, for responsibility,” as he told the radio station Franceinfo. “It’s a call for seriousness,” he added, referring to France’s public finances. “We cannot ignore this cloud, which is added to a weather forecast that is already quite gloomy.”
At S&P the second largest economy has the Eurozone now the same grade as Portugal and Spain. The S&P experts still expect a high rate New debt of the country of more than five percent, measured in terms of gross domestic product. The country’s newly formed government led by Prime Minister Sébastien Lecornu has set itself the goal of reducing this value next year from the 5.4 percent expected for 2025 to 4.7 percent. By 2029, new debt should be reduced to 3 percent of economic output.
With the surprising downgrade by S&P, France has lost its double A rating from two of the three largest rating agencies. It was only in September that Fitch reduced the country’s credit rating from “AA-” to “A+”. Moody’s decision is due on Friday next week. The country currently rates this as “Aa3”.
Recent devaluations may force investment funds with strict rating requirements to divest from French government bonds. This could increase pressure on the already ailing market for the securities. In the past few weeks, the risk premium has risen sharply compared to German bonds due to the government crisis, even if the situation has calmed down somewhat in the last few days after the vote of no confidence against Lecornu was averted.
“France is currently experiencing the most severe political instability since the founding of the Fifth Republic in 1958,” said the S&P analysis of the downgrade. “Even if early parliamentary elections were called and resulted in a clear majority in the National Assembly, there is no guarantee that this would pave the way for a credible medium-term fiscal consolidation plan or the implementation of economic reforms.”
PARIS/LONDON (dpa-AFX)