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PARIS — Credit rating agency Standard & Poor’s on Friday cut France’s credit rating, pouring cold water on the French government’s efforts to put its public finances back in order.
The agency lowered France’s credit rating from AA to AA−, citing larger-than-expected deficits and political fragmentation as reasons for the downgrade. The outlook is stable.
French Finance Minister Bruno Le Maire was quick to stress that the downgrade was the price to pay for bolstering the French economy with public support during the pandemic and the inflation crisis.
“I have to tell you, in reality the main reason for this downgrade is that we saved the French economy,” Le Maire said in an interview with Le Parisien published right after the ratings decision was announced. The downgrade “will have no impact on the daily life of the French,” he said.
“This essential spending has obviously increased our debt, but also allowed us to save our businesses and jobs,” Le Maire added.
While lauding past French labor-market reforms undertaken under French President Emmanuel Macron, the rating agency expressed doubts on the government’s ability to make further reforms without an absolute majority in the parliament.
“We believe political fragmentation adds to uncertainty regarding the government’s ability to continue implementing policies that increase economic growth potential and address budgetary imbalances,” S&P wrote. The budget deficit is forecast to remain above 3 percent of gross domestic product into 2027, the agency said.
The rating decision came a day after Le Maire celebrated his record seven-year tenure at the economy ministry by sharing some charcuterie and wine with his closest allies on Thursday.
After years of big spending to face the economic crises caused by the pandemic, high energy prices and Russia’s invasion of Ukraine, France is now tightening the belt. Le Maire’s ministry in April announced spending cuts of €10 billion for the second time this year.
These cuts were not sufficient to meet the government’s deficit-reduction goal for this year. Paris had to revise it from an initial target of 4.4 percent of GDP to a more realistic 5.1 percent.
On top of that, the government is looking for at least €20 billion of extra cuts for next year, taking aim at social outlays like unemployment benefits and health spending. In that vein, earlier this week Prime Minister Gabriel Attal proposed to reduce the period during which jobless persons can receive unemployment benefits.
But all these efforts were not enough to convince the rating agency, which in December had maintained a “negative” outlook on France’s credit rating.
In April, rating agencies Moody’s and Fitch both kept their ratings on France unchanged with a stable outlook, after Fitch downgraded the country’s credit rating last year.
