2023-06-02 04:51:09
Baptiste Morin with AFP / Photo credit: THOMAS COEX / AFP
After Fitch’s bad rating in April, France is already on the table with the rating agency S&P Global’s assessment of the French economy on Friday, which might lead, as for that of its colleague, to a deterioration in the form of snub for the government.
The pressure mounts as the deadline approaches, taken very seriously by a government anxious to display a solid economic policy and a serious budget. The American agency Standard and Poor’s will give its verdict on France’s rating, which might drop from AA to AA-. In April, Moody’s had confirmed its rating of AA2 with a stable outlook while Fitch had downgraded his. But how do these rating agencies work?
What is a rating agency?
Rating agencies are private companies. For investors, they assess the solvency most often of other companies, but also of local authorities and states. The agencies value the ability of these organizations to repay the debts they have incurred. These agencies assign a grade from A to D, sometimes accompanied by a plus or minus sign. If it’s a triple A, it’s fine. If it’s a triple C, there is a risk of non-refund. A D stands for bankruptcy.
What consequence for France?
France is rated “AA” by S&P Global, formerly Standard and Poor’s, one of the three most influential American rating agencies, along with Fitch and Moody’s. It might downgrade the note on Friday evening by one notch, to “AA-” but also not publish anything, which would then represent a maintenance of the French note unchanged.
Friday’s degradation of the note might have the effect of increasing French borrowing interest from investors, the latter demanding more to agree to lend to France. However, the interest rates on 10-year loans are already at their highest levels for eleven years due to rate hikes by the European Central Bank, which is fighting once morest inflation and is mechanically driving up the borrowing rates of the States of the euro zone.
France’s rating downgraded only twice since 1975
S&P has rated France since 1975 and has only downgraded it twice. It is also the first to have withdrawn from France its emblematic “triple A” in 2011, the best possible rating and symbol of excellent management, from which a small circle still benefit from the three agencies, like the Germany, the Netherlands and Australia.
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