Lots of debt and a broken government – the rating agency Fitch has downgraded France’s credit rating. It should now be significantly more expensive for the neighboring country to get money on the capital market.
In the middle of the budget crisis in France, the rating agency Fitch has downgraded the country’s creditworthiness. This makes it difficult for the government in Paris to finance its government debt. The creditworthiness of the second largest economy in the euro zone was reduced from AA- to A+, as Fitch said. This should make it a little more expensive for France to get money on government bonds on the capital market.
With around 3.3 trillion euros, France has the highest debt in the European Union. In terms of economic output, the debt rate is 114 percent the third highest after Greece and Italy. Government spending are also among the highest in Europe. There have long been concern that France could brake the already weak economic development of Europe.
Agency has little hope of reforms
Fitch mentions the high and probably increasing public debt as a reason for the gradation. In addition, the rating agency sees low chances of success for economic reforms because the country is polarized and unstable in terms of domestic policy. One symbol for this is that there have been three different governments since mid -2024. “We assume that the preliminary run for the 2027 presidential election will further restrict the scope for budget consolidation in the near future and consider it very likely that the political patient situation will continue after the election.”
Most recently on Monday evening Prime Minister François Bayrou had lost a question of trust in parliament after less than nine months in office and then his post at the head of the minority government. France’s budget deficit recently was 5.8 percent of gross domestic product and thus clearly exceeds the 3 percent limit that the European Union has set in the stability pact. The EU opened a deficit procedure against France in July 2024.
Does the ECB intervene?
There is great concern that France’s debt could get out of control. The financial markets already speculate whether the ECB would support the second largest euro folk economy with government bond purchases. A new euro crisis as in the past decade is not considered likely at the moment among economists.
For France, however, new debts are becoming increasingly expensive: the risk surcharges for French government bonds have recently increased significantly, the return of ten -year -old bonds is above that of securities from Greece. The gradation by FITCH should tighten the situation.
Protests against savings plans
Ex-Prime Minister Bayrou reacted sharply to the downgrading by Fitch. “A country whose ‘elites’ make it to reject the truth is condemned to pay the price for it,” he said. Bayrou, as a premier, wanted to save billions annually and to delete holidays, reduce the number of state officials and merge and freeze public expenses including pension payments and social benefits. In contrast, there were violent protests. The new Prime Minister Sébastien Lecornu has announced that the gap between the political situation and the expectations of the citizens.
The chairman of the Finance Committee of the National Assembly, the MP Éric Coquerel from the LFI left -wing party, sees the result of “two months of a catastrophist rhetoric on the financial situation of the country”. Coquerel warned that the next government should also rely on the financial markets to enforce a hard austerity policy, head directly to the disaster it announced by it – and will drive the country even deeper into the economic, social and ecological crisis.