The French Ministry of Finance in Paris received a bit of relief as credit rating agencies Moody’s and Fitch chose not to downgrade France’s credit rating, despite the country’s deteriorating public finances. Moody’s maintained its Aa2 rating with a stable outlook, emphasizing the low risk of default. Fitch, which had lowered France’s credit rating by one notch a year ago, left it unchanged at AA-. The French Minister of Economy and Finance, Bruno Le Maire, welcomed the decision but emphasized the need for continued efforts to restore public finances and meet the deficit target set by the President.
While the government refrained from celebrating, the reprieve for Bercy is expected to be short-lived. Standard & Poor’s, another major credit rating agency, will release its analysis on France’s debt on May 31st, just a few days before the European elections. This upcoming assessment is causing concern for the executive branch, despite the awaited decisions from Fitch and Moody’s on Friday. Credit rating agencies issue reports on France’s financial health every six months, a practice that has gained significance since the end of 2022 due to costly crises like the Covid-19 pandemic and rising inflation.
In December 2022, Standard & Poor’s had already warned of a potential downgrade of France’s credit rating in the medium term, a rare alert that went largely unnoticed at the time. Fitch followed suit five months later by lowering its rating to AA−, expressing concerns not only about the country’s debt and deficit trajectory but also about political deadlock and social unrest that could hinder President Macron’s reform agenda. The threat of a further financial blow has loomed over Paris since then, as the cost of borrowing for France is expected to exceed 300 billion euros this year, with interest rates now above 3%.
Despite the potential financial implications of a credit downgrade, France must closely monitor the assessments of credit rating agencies as it plans to borrow billions of euros this year. Bercy anticipates that debt servicing costs will increase due to rising interest rates, reaching over 72 billion euros by 2027, approaching the budget allocated to the national education system. The evaluation of France’s creditworthiness by rating agencies underscores the importance of maintaining sound public finances and meeting deficit reduction targets set by the government to ensure fiscal stability and favorable borrowing conditions. The outcomes of these assessments have significant implications for France’s economic outlook and financial standing within the global market.
