The final blow has come. After several warnings that went unheeded in recent months, on Friday, May 31, France's sovereign credit rating was downgraded by Standard & Poor's (S&P) from AA to AA-. This downgrade is the logical consequence of a chaotic budgetary issue. The government's misjudgment of the slowdown in France's growth led it to overestimate 2023 tax revenues by €21 billion. This culpable optimism has derailed the budget's trajectory, with a much larger deficit than expected.
With its back to the wall, the government has hastily announced €20 billion in savings that have yet to be detailed, without daring to face the Assemblée Nationale, where it only has a relative majority of support. With the threat of a motion of no confidence looming, the budget bill for 2025 promises to be particularly difficult to put together, not to mention the efforts that are to be made between now and the end of President Emmanuel Macron's five-year term.
S&P has been all the more concerned about the situation given that France's debt-to-GDP ratio (with its national debt now in excess of €3,100 billion) will continue to rise over the next few years. While most eurozone countries have begun to reduce their debt, France remains on the opposite path. Doubts have been growing about the government's ability to meet its deficit reduction targets. Only Finance Minister Bruno Le Maire is still clinging to the idea of being able to bring France's debt below 3% of GDP in 2027.
Nevertheless, the US rating agency's warning signal is more likely to be heard in the political arena than in the financial markets. These markets already have a fairly accurate picture of the situation, and investors' appetite for French debt, protected by the umbrella of the euro, is not going to collapse overnight.
In a budgetary trap
The effects on public opinion are likely to be more palpable. This downgrading may be used by the government to justify future tightenings of the budgetary screws. Yet above all, it weakens the French government's economic credibility, as it had claimed to be containing deficits by boosting growth through supply-side policies. The illusion was shattered by the sudden rise in interest rates and the slowdown in European growth. It then became clear that the government, strongly encouraged by the opposition, had extended its "whatever it takes" policy beyond all reasonable limits.
With one week to go before the European elections, this downgrading gives the impression that the current administration has, in the end, done no better than its predecessors. It presents the French people with the image of a country at a standstill, lacking any financial room for maneuver. It also undermines Macron's claim to European leadership in the wake of a second speech at the Sorbonne in April. (Following his first speech at the Paris university in 2017, which brought him to the forefront of the European stage.) It's hard to lead the continent when your own country is caught in a budgetary trap.
For opposition parties of all stripes, who in recent years have shown little concern for balancing public accounts, this is a very good opportunity to castigate the government's carelessness in budgetary matters. However, their misguided joy would be misplaced. S&P's warning applies not just to the president, but to the country as a whole. Those who aspire to lead it after 2027 will not escape the questions to which Macron is struggling to find answers.