French rating threatened with downgrade this Friday

Fitch, the smallest of the three international rating agencies, opens the ball rolling this Friday. All of them, in light of the state of French public finances and the ongoing political crisis since the dissolution, rate France AA- or equivalent (debt quality "high or good"), with, for some like Fitch, a "negative outlook." This foreshadows a downgrade: in this case, France would fall into category A ("upper average" quality), and would have to pay those who invest in its debt a higher risk premium, increasing repayments of this debt accordingly.

For Eric Dor, director of economic studies at the IESEG School of Management, a downgrade would be "logical." Firstly, because the political situation is not conducive to implementing "a credible fiscal consolidation plan," as Fitch demanded in March. But also to erase "an inconsistency" : 17 European countries are rated lower than France, even though 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.

Since Tuesday, the rapid appointment of Sébastien Lecornu to Matignon to succeed François Bayrou, who fell the day before in the confidence vote, has revived hopes of a 2026 budget presented on time. Lucile Bembaron, an economist at Asterès, considers it "plausible" that Fitch "waits for more political visibility" before acting. This is especially true, notes Hadrien Camatte, France economist at Natixis, because public finances have not experienced any new unexpected slippage this year, and "growth is holding up."

The INSEE even announced Thursday that despite the widespread "lack of confidence," it could exceed the outgoing government's forecast of 0.7%, reaching 0.8% this year. Anthony Morlet-Lavidalie, head of France at the Rexecode institute, also notes that Fitch, the smallest of the three major 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 downgrade its ratings during 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, maintain that a deterioration would not trouble the markets, "which have already priced it in ," notes Maxime Darmet, senior economist at Allianz Trade.

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. The markets are already giving France an "implied rating" much lower than its current rating of AA-, Mr. Morlet-Lavidalie believes. He fears rates that would remain "permanently very high," causing "a progressive strangulation," with interest payments capturing "a significant portion 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 it. 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 lowered to A+, "French debt would still be of very good quality," Hadrien Camatte puts things into perspective, preferring to emphasize "the strong savings of households and a position of companies that remains very healthy."