The Fitch agency downgraded France’s credit rating on Friday, as President Emmanuel Macron struggles with political instability and disagreements on how to put the country’s strained public finances in order.
The US rating agency, one of the top global institutions gauging the financial solidity of sovereign borrowers, downgraded France on its ability to pay back debts, from “AA-” to “A+”, the country’s lowest level on record at a major credit rating agency.
It also said France’s debt mountain would keep rising until 2027 unless urgent action was taken, attributing its cut to the lack of “a clear horizon for debt stabilisation in subsequent years”.
The move comes four days after Francois Bayrou resigned as prime minister after losing a parliamentary confidence vote over an attempt to get an austerity budget adopted. He had sought big spending cuts in the budget to cut the French deficit and debt.
Reacting to the announcement, Bayrou said on X that France was “a country whose ‘elites’ lead it to reject the truth (and) is condemned to pay the price”.
The downgrade will further complicate the task of the new prime minister, Sebastien Lecornu, probably heading a minority government, of drawing up a budget for next year.
Fitch said in a statement: “The government’s defeat in a confidence vote illustrates the increased fragmentation and polarisation of domestic politics.
“This instability weakens the political system’s capacity to deliver substantial fiscal consolidation,” it added, saying it was unlikely the fiscal deficit would be cut to 3% of GDP by 2029, as the outgoing government had wanted.
The outgoing economy minister, Eric Lombard, said he had taken note of Fitch’s move and that Lecornu was pushing ahead with consultations with lawmakers to get a budget adopted and restore the public finances.
A rating downgrade typically raises the risk premium investors demand of a government to buy sovereign bonds.
Some financial experts had suggested the debt market had already priced in an expected downgrade for France, but the move is more consequential than recent downgrades because it could presage peers to follow suit, potentially leading to forced selling of French bonds by investors bound by ratings thresholds.
On Tuesday, the return on French 10-year government bonds, known as the yield, rose to 3.47%, close to that of Italy, one of the eurozone’s worst performers.
Rising yields would translate into higher costs for servicing France’s debt, which Bayrou warned was already at an “unbearable” level.
Since Macron’s allies in parliament have no overall majority, they will probably have to make compromises that could undermine any drive to slash spending and raise taxes – with Lecornu’s job possibly also on the line.
France’s budget deficit represented 5.8% of gross domestic product (GDP) last year, and its debt 113% of GDP.
This compares with eurozone ceilings of 3% for the deficit, and 60% for debt.
“Fitch projects debt to increase to 121% of GDP in 2027 from 113.2% in 2024, without a clear horizon for debt stabilisation in subsequent years,” the agency said.
“France’s rising public indebtedness constrains the capacity to respond to new shocks without further deterioration of public finances.”
France is still cautiously targeting economic growth this year. The INSEE national statistics bureau said on Thursday that GDP was projected to grow by 0.8% for 2025, 0.1 points more than the previous government’s estimate.
Rival agency S+P Global is due to update its own sovereign rating for France in November.
With Agence France-Presse and Reuters