France’s AA Credit Rating at Risk: Expert Analysis and Insights

2023-06-02 03:08:16

The verdict of S&P Global, one of the three main American rating agencies in the world with Moody’s and Fitch, is expected in the evening, around 11:00 p.m.

The rating agency ranks France “AA” on a scale of twenty notches ranging from “AAA”, the best possible rating, to “D”, synonymous with payment default. It could lower the rating by at least one rank, to “AA-“, but also maintain its assessment unchanged.

It can also play on its “perspective”, which gives the probable evolution in the medium term. This is currently “negative”, which means that a lowering is possible.

His analysis is watched very closely by French leaders anxious to display since the arrival at the Élysée of Emmanuel Macron the image of good managers and reformers. A demotion would represent a snub.

The Ministry of Economy and Finance declined to comment to AFP before publication. On Wednesday, Bruno Le Maire confirmed having met with the American agency in order to present the French “arguments”, which he considers “convincing”.

“We will be intractable on the restoration of our public finances, on the reduction of deficits and on the acceleration of the reduction of the public debt”, committed the minister on France Inter, qualifying the French economic results as “solid”. .

“Whatever the decision of S&P, it does not change our determination to meet our public finance objectives,” said Prime Minister Elisabeth Borne on Thursday during a trip to Laval.

In the face of the numbers, however, France shows worse results than the other countries rated in the same category, noted the agency Fitch which lowered the French rating at the end of April, from “AA” to “AA-“.

High debt and deficit

It has the highest indebtedness of countries in the “AA” category. Its public debt is close to 3,000 billion euros.

The public deficits anticipated for this year and next year are also much higher than countries benefiting from a similar rating, noted Fitch, who also cited the social crisis resulting from the pension reform and the difficulties facing the executive for future reforms as justification for his decision.

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On this point, French President Emmanuel Macron judged that the Fitch agency “was deeply mistaken in its political analysis”, during a recent interview with the French daily Opinion.

For its part, Moody’s underlined in a comment at the end of April the “weak mandate” which the government now had to carry out its policy, without however revising France’s rating.

The government’s concerns about these decisions are commensurate with the risks that a downgrade often poses to a state: a rise in borrowing interest rates by investors demanding additional security to lend to France.

However, the downward revision of Fitch’s rating did not really weigh on French rates.

Nevertheless, the situation is already delicate: the interest rates of 10-year loans are sailing at their highest levels for eleven years due to the monetary tightening of the European Central Bank which is fighting against inflation and is mechanically pushing the borrowing rates of the States of the euro zone.

Reimbursement of the debt burden is also on the way to becoming the first state budget in France.

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