French rating threatened with downgrade as early as Friday

Fitch kicks off the rating agencies' autumn reviews. All of them, in light of the state of French public finances and the ongoing political crisis since the dissolution, have rated France AA- or equivalent (debt quality "high or good"), with some, like Fitch, giving it a "negative outlook."

This foreshadows a downgrade: in this case, France would fall into category A (higher average quality), and would have to pay those who invest in its debt a higher risk premium, thereby increasing repayments of this debt.

For Eric Dor, director of economic studies at the IESEG School of Management, a downgrade would be "logical." First, because the political situation does not help implement "a credible fiscal consolidation plan," as Fitch demanded in March.

But also to erase "an inconsistency" : 17 European countries are rated less well than France while they have - with very few exceptions - public finance ratios better than the 5.8% of GDP public deficit and 113% of GDP public debt recorded in France in 2024.

Kick-off

Since Tuesday, the rapid appointment of Sébastien Lecornu to Matignon to succeed François Bayrou, who fell the day before during the confidence vote, has revived hopes of a 2026 budget presented on time.

Lucile Bembaron, economist at Asterès, considers it "plausible" that Fitch "waits for more political visibility" before acting.

Moreover, notes Hadrien Camatte, French economist at Natixis, public finances have not recorded any new unexpected slippage this year, and "growth is holding up."

The INSEE even announced on Thursday that despite the general "lack of confidence," it could exceed the outgoing government's forecast of 0.7% to reach 0.8% this year.

Anthony Morlet-Lavidalie, head of France at the Rexecode institute, also observes that Fitch, the smallest of the three main international rating agencies, "rarely gives the go-ahead" for downgrades.

But he believes it is "very likely" that the main agency, S&P Global, will lower its thumbs-up in its own review on November 28.

According to his calculations, France will not be able to reduce its public deficit to less than 5% next year, compared to the 4.6% that François Bayrou had hoped for.

Economists, however, say that a downgrade would not disturb the markets, "which have already priced it in," notes Maxime Darmet, senior economist at Allianz Trade.

Syndrome

French debt is already trading at a much more expensive rate than German debt, even exceeding the rate of Italian debt for one day on Tuesday.

Markets already give France an "implied rating" much lower than its current AA- rating, Morlet-Lavidalie believes.

He fears that rates would remain "very high for a long time" , causing "a progressive strangulation" , with interest to be repaid capturing "a significant part of public spending, while we have considerable needs in other areas".

The economist describes a France prey to "bad student syndrome."

"When we had 20/20," he explains - France was rated AAA until 2012, the highest rating that Germany still has - "we did everything to maintain that. Now we say that 17/20 (AA-) is still a very good rating. Soon it will be as long as we are above average, it's not so bad. When you're France, in the eurozone, you should still be a little more ambitious than that!" he tells AFP.

However, even if lowered to A+, "French debt would remain of very good quality," Mr. Camatte puts into perspective, preferring to emphasize "the strong savings of households and a position of companies which remains very healthy."