the S&P agency grants an unexpected reprieve to France

Drama on the French debt. Against all expectations, the American agency Standard & Poor's maintains its rating unchanged, leaving it in «AA-»perspective «stable». «Despite political uncertainty, we expect France to comply – with a delay – with the European budgetary framework and gradually consolidate its public finances in the medium term“, indicated the American agency in a press release. The announcement does not fail to surprise, the three other agencies (Fitch, Moody's and Scope Ratings) having all reduced their assessment of French sovereign debt this fall. A correction the least and perspective “negative” would have been received without surprise.

However, S&P chose to stick to its rating from last May, when it raised it from «AA» has «AA-». The agency then sanctioned the “deterioration of the budgetary position” of the country. “France’s budget deficit in 2023 was significantly higher than we had expected”had justified American society, doubting that the deficit could return below 3% of GDP by 2027. A few days later, Emmanuel Macron announced the dissolution of the National Assembly. Then the slippage of the 2024 deficit was confirmed, going from 5.1% to 6.1% (compared to 4.4% initially anticipated). So many bad points which could have led S&P to be less lenient.

Peak debt in 2027

The newly installed Barnier government has made budgetary recovery its central mission, with an initial objective of 60 billion euros in savings, in order to return to a deficit “around 5%”. By dint of concessions to win the vote of political allies as well as the RN, and thus avoid censorship, this objective seems very difficult to maintain. “The agencies must know that the government of France is serious and methodical, and that we will do what we say”however assured the Prime Minister in an interview given to Figaro . Michel Barnier recalled in passing that the European Commission had approved at the beginning of the week the multi-annual budgetary trajectory supported by France. This predicts that the debt will reach its peak in 2027, at 116.5%, before finally beginning its decline. The deficit, for its part, would fall back below 3% in 2029.

This trajectory, by not giving the impression of giving in to excess optimism, probably weighed in Standard & Poor's choice to grant France a reprieve. In addition, the rating agency does not align with the markets' concerns: the interest rate at which the French state borrows at 10 years briefly exceeded that of Greece, reaching 3.05% on Wednesday, this which means that investors considered that it was as risky to lend to Athens as to Paris… Pending S&P's decision, the French rate rose to 2.9% this Friday.

However, France's debt is not safe from a downgrade to the “A” category. “It would take three green lights to avoid a rating downgrade within three or four months or during the next official spring reviewwarns Norbert Gaillard, economist and independent consultant: that the government remains in place, that it presents a coherent budget for 2025 and that it results in a reduction of the deficit for next year which is significant and credible. For the executive, faced with a bustling National Assembly, the debt battle is still far from won.