What did the Fitch agency do on Friday?
Like the other two major rating agencies (S&P and Moody’s), Fitch regularly assesses the ability of States to repay their debt, by assigning them a rating materialized by letters.
The best rating is AAA (best credit), the worst is C or D (default) depending on the agency.
On Friday, France’s rating was downgraded by one notch to “AA-“, once morest “AA” previously.
To justify its decision, Fitch mentions in particular “significant budget deficits and modest progress” concerning their reduction, following three years of abundant public spending intended to cushion the shock of Covid and inflation.
With a double A, the French debt is still judged to be “very good quality” by the agency and remains popular with investors, who appreciate the security of this investment. But it was downgraded to the last level before the simple A, which corresponds to a credit of “good quality”.
Fitch’s decision “goes once morest what the government might expect” following the adoption of the pension reform, supposed “show the markets that he had credibility in controlling long-term budget balances”commented Saturday on franceinfo the economist of the OFCE Mathieu Plane.
What precedents?
Certainly unpleasant, Friday’s episode is less significant than France’s loss of its triple A – S&P and Moody’s deprived Paris of this sesame in 2012, Fitch in 2013.
“It was the leap into the unknown”told AFP Anne-Laure Kiechel in early March. “At that point, we say to ourselves that we can have certain investors who will participate less” to the purchase of French debt on the markets, adds the founder of the firm Global Sovereign Advisory, specializing in the debt of States.
Currently, the S&P (AA with negative outlook) and Moody’s (Aa2, stable outlook) agencies both attribute the third best possible rating to France. The first must update its rating on June 2.
What consequences?
On Saturday, the Minister of the Economy Bruno Le Maire sought to reassure by reaffirming to AFP the government’s desire to “to pass structuring reforms for the country”. On Friday, Fitch described the strong social tensions around the pension reform as “risk to the reform program” of President Emmanuel Macron.
On the issue of debt, “do not doubt our total determination to restore the nation’s public finances”Bruno Le Maire insisted on Saturday.
When losing triple A in 2012-2013, France “didn’t lose any investors” on its debt, assures Anne-Laure Kiechel. Several other European countries had also been downgraded by the agencies, which had put into perspective the seriousness of the episode for the markets.
More “there are more critical ratings: if we moved to simple category A, there it is possible that some investors” buy less French debt, warns Ms Kiechel.
“If there is a form of loss of credibility for France in terms of its ability to repay its debt, it may have to borrow more expensively on the markets” and therefore to pay more interest, recalls Mathieu Plane. “It would strain public finances or budgetary leeway.”
France in the middle of the pack
Among the major European countries, France is rated less well than Germany (triple A by the three major agencies).
But Berlin is an exception, at a time when Moody’s threatens to downgrade Italy by one level to classify its debt in the unenviable category of speculative investments.
Another heavyweight of the European economy, Spain is also less well rated than France, unlike the Netherlands (triple A).
Whatever their profile, all European countries have been faced with a sharp rise in interest rates since 2022, which increases the cost of their debt
