France Is Threatened with A Downgrade in Its Credit Rating

France Is Threatened with A Downgrade in Its Credit Rating

France faces the possibility of a credit downgrade on Friday, despite efforts by Paris to dissuade credit agencies from such a move. At the same time, credit agencies and banks point out that the weakness of French public finances is a reality.

Standard and Poor’s, one of the world’s three largest rating agencies, should update its assessment of France’s creditworthiness later on Friday, the Guardian reports. Last December, S&P cut France’s outlook from “stable” to “negative” due to growing risks to public finances, and Paris’ credit rating is expected to be downgraded to AA-.

At the end of April, the Fitch agency lowered France’s debt rating from AA to AA-. Meanwhile, French Economy Minister Bruno Le Maire met several times with S&P officials to assure them that there is no need to downgrade the country’s credit rating, reports ING.

French Economy and Macron’s Reform Challenges

The French economy grew by 0.2 percent in the first quarter of the current year, and the country’s president, Emmanuel Macron, signed the controversial pension reform law, which prompted unions and citizens to launch a series of mass protests. Fitch warned in April that Macron’s reform agenda could stall due to strong opposition to pension reform.

The downgrade could be embarrassing for the president and the government and heighten doubts about his government’s efforts to boost growth and reduce the debt burden that has grown due to stimulus spending during the pandemic and rising energy costs.

In an attempt to calm citizens’ anger over pension reform, Macron relaxed labor laws and promised tax cuts, but failed to end France’s dependence on big spending to buy social peace, Yahoo Finance estimates.

With France’s public debt among the highest in Europe, Macron’s plans have drawn sharp warnings from the public audit service and the central bank, which say the country cannot afford to cut taxes without cutting spending.

Quick Debt Reduction

Le Mer promised to “accelerate the reduction of the French debt.” According to him, the goal is to reduce the national debt from 111.6 percent of GDP to 108.3 percent in the next four years. He pointed out that in the conversation with the representatives of S&P, he presented convincing arguments and promised to be “uncompromising” regarding implementing the debt reduction plan.

The French minister stated that “contrary to the assessment of the Fitch agency,” the country can adopt and implement reforms. He announced that he would present detailed plans later this month and ordered all ministries to reduce their budgets by five percent.