S&P Global Ratings has downgraded France, tarnishing President Emmanuel Macron’s record on managing his debt and plunging him into deeper political trouble every week before the European elections.
In a press release on Friday, the credit standing agency stressed that the French government had missed its targets in containing the budget deficit after huge spending in the course of the Covid pandemic and the energy crisis.
S&P said that while reforms and a recovery in economic growth would improve the situation, the outlet would still be greater than three percent of gross domestic product in 2027.
The downgrade of the rating from AA to AA- is a heavy blow for Macron, who has tried to accumulate a repute as a Economic reformer is capable of meet France’s challenges of low growth and high government spending.
The timing can be problematic for his government, because it wants to make use of Macron’s economic record as a model within the campaign for the European elections on June 9. According to polls, his Renaissance group continues to lag far behind Marine Le Pen’s far-right Rassemblement National.
Le Pen used the S&P’s decision to call on voters to sanction Macron within the EU elections. She also called on other opposition MPs to support her party’s latest no-confidence motion geared toward bringing down the country’s government.
“The disastrous management of public finances by governments that are as incompetent as they are arrogant has put our country in serious trouble, with record taxes, deficits and debt,” she said in a message on X late Friday.
Reacting to S&P’s decision, Finance Minister Bruno Le Maire said the federal government stays committed to its strategy of reducing the deficit to below three percent of GDP by 2027 through reindustrialization and full employment.
According to the minister, the downgrade is as a consequence of a pointy increase in debt as the federal government spent huge sums to rescue corporations and protect households in the course of the Covid pandemic.
In its decision, S&P stated that contrary to previous expectations, it now expects France’s public debt as a share of GDP to rise from about 109 percent in 2023 to about 112 percent of GDP in 2027.
“The main reason for this downgrade is that we saved the French economy,” Le Maire said in an interview with Le Parisien. “If we had not taken these decisions, we would probably have been downgraded earlier.”
The downgrade puts France seven notches above junk status on S&P’s rating scale, putting it on a par with the Czech Republic and Estonia. The outlook for the rating is stable.
France has increasingly grow to be the main target of investors in Europe who’re concerned in regards to the long-term sustainability of its enormous national debt. The excess yield on 10-year bonds in comparison with German securities has already doubled from pre-Covid levels.
That premium rose to 48 basis points last week before S&P’s decision. Mizuho International strategist Evelyne Gomez-Liechti said a downgrade would likely offset the spread tightening seen since April, when Moody’s Ratings and Fitch Ratings each repeated their attitude and views towards France.
The European Union’s second-largest economy faces a growing challenge to contain debt after Deficit of last yr were significantly higher than originally planned given the weak growth and disappointing tax revenues.
The Ministry of Finance initially replied counteract the deterioration by pledging additional spending cuts this yr. But these austerity measures weren’t enough to avoid cuts. longer-term commitmentsto plug budget holes.
The French High Council for Public Finances has declared that the revised budget plans aren’t any longer Credibility and coherence because they require unprecedented cuts that will harm economic performance.
In addition to Le Pen’s Rassemblement National, other political parties have also used the debt problems in recent weeks to attack Macron’s government. The far left has also proposed issuing a separate vote of no confidence within the National Assembly on Monday.
So far, the centre-right Républicains party, which might play a key role in a successful no-confidence vote, has refused to affix forces with other groups to bring down the federal government and is unlikely to accomplish that on Monday. However, it has continued to be vocal in its criticism of the federal government’s budgetary policies.
“France is being punished for its mistakes and budgetary inconsistencies,” said Eric Ciotti, leader of the Républicains, in a message on X. “This is where the Macron-Le Maire duo’s miserable management of public finances is leading us.”
Despite the opposition, Macron’s government has tried to push forward its economic agenda in recent weeks by introducing bills to chop bureaucracy and announced further changes to unemployment insurance. AdvantagesIt is claimed that this may boost employment and get monetary savings.
Nevertheless, in keeping with S&P, the agenda will proceed to face strong resistance, each from parliament, where the federal government doesn’t have an absolute majority, and from protests reminiscent of those seen against the pension reform in 2023.
“Given political fragmentation, the continued implementation of policy measures to address economic and fiscal imbalances is likely to be somewhat uncertain,” S&P said.
