France’s debt crisis has reached a critical point, leading to a downgrade in its credit rating by Standard & Poor’s (S&P) from “AA” to “AA-“. This marks the first time S&P has downgraded France’s credit rating since 2013, with Fitch also issuing a similar downgrade in April 2023.
The downgrade by S&P comes at a particularly challenging time, just one week before the European elections. The agency had previously warned France that its credit rating would be downgraded if financial conditions did not improve. Concerns over rising debt levels, lower-than-expected economic growth, and political fragmentation were cited as reasons for the downgrade.
France now shares a credit rating with countries like the Czech Republic and Estonia, falling below the United Kingdom. Despite attempts to reassure the public by Economy and Finance Minister Bruno Le Maire, the downgrade sends a serious political signal. In 2023, France’s deficit was higher than expected at 5.5% of GDP, leading to a total debt of over €3,100 billion euros, equivalent to 110% of GDP. Macron’s economic policies, including tax cuts and business-friendly reforms, have not been enough to offset the spending on public services and pandemic relief measures.
The impact of the downgrade may be minimal in the short term as demand for government bonds remains high. However, France’s borrowing costs have risen significantly, reaching over €50 billion this year and expected to rise further in the future. Despite plans to reduce the deficit by 2027, economists doubt the feasibility of this goal.
The timing of the downgrade poses additional challenges for Macron as he faces criticism from opposition parties who have submitted motions of no confidence against his government due to concerns over austerity measures and budget decisions. While these motions are unlikely to pass
