Twelve o’clock. Twelve hours to manage the crisis and control communication. On Friday 13 (necessarily) January 2012, the Secretary General of the Elysée, Xavier Musca entered Nicolas Sarkozy’s office while the Minister of the Economy François Baroin received an SMS from the Director of the Treasury, Ramon Fernandez: “Remember- me urgently.” Storm at the top of the state. At 10:30 p.m., Standard and Poor’s will announce that it is lowering by one notch the rating assigned to the sovereign securities of nine countries in the euro zone, including France. Triple A is over. “The information will only be official in twelve hours, the time allowed between the announcement by an agency of a degradation to a State and the public communication of this news, writes François Baroin in crisis diary (2012). So we had twelve hours to prepare for the possible fallout from this decision.”
Over the past few weeks, François Baroin has had numerous meetings with officials from the France Trésor agency and with the Governor of the Banque de France, he has even seen the leaders of the rating agencies. In vain. This Friday, the Minister of the Economy decides to break the embargo to remain in control of communication. After a detour via the Elysée, to define the counter-attack strategy with Nicolas Sarkozy, he went to the 8 p.m. newspaper on France 2 to announce the degradation himself. In his car, he develops a formula: “The loss of triple A is a student who has had 20 all his life and who has just turned 19. It’s less good but it’s not a disaster.” No sooner had he left the set than he received a phone call from Nicolas Sarkozy: “I’m proud of you.”
The president, who is about to enter the campaign the following month to try to be re-elected, is obviously furious with the decision, he will wait until the following Monday to speak. During a press conference in Madrid, he began by rebuffing a journalist who questioned him on the subject, before replying: “It is not the rating agencies that should define economic policies.” L’Express writes: “The political consequences are immediate. For three years, the Head of State has based his economic action on maintaining the triple A. He had made it a personal matter, a test of his voluntarism. He falls into the trap he has set for himself.”
“We are in a very different situation from that of Sarkozy”
It’s exactly the same thing except that it’s the opposite, according to Captain Haddock’s fine analysis. On April 28, the financial rating agency Fitch Ratings raised France’s rating from AA with a negative outlook to AA− with a stable outlook: “The political stalemate and the (sometimes violent) social movements constitute a risk for Macron’s reform agenda and could create pressure for a more expansionary fiscal policy or a reversal of previous reforms.” On June 2, Standard and Poor’s will deliver its verdict. This agency, which evaluates the French debt at AA with a negative outlook, is all the more watched as its influence is greater than that of Fitch, we agree to the Elysée.
This time (unlike 2012), the president cannot stand for re-election. But Emmanuel Macron, if he wanted to announce a tax cut of two billion for the middle classes by the end of his five-year term, is keen – “at the same time”, as someone would say – to his international image as to the apple of his eye. But a doubt continues to hover over the real and lasting will of this Head of State to clean up the accounts. Said modestly by a relative: “Emmanuel Macron has made it less of a marker of his five-year term, we are in a very different situation from that of Nicolas Sarkozy.” But this ambiguity can in turn fuel a major reproach. “Politically, if the rating is downgraded, it’s annoying, points out a minister among those close to Emmanuel Macron, because it will give a ready-made argument to the RN: ‘Ah, you are giving us lessons in competence, while you can’t keep your grade?'”
And this same ambiguity seemed to prevent us from speaking with perfect clarity. A historical macronist: “We should have assumed that we were facing financial difficulties and said that we depended on the financial markets to finance our public service and our social model and explained that in order not to depend on these markets, we had to work more , therefore take the question from the angle of sovereignty.”
How the government wants to convince Standard and Poor’s
If the context is not that of a presidential campaign, political considerations are not absent. Bruno Le Maire does not at all want to be branded with a red iron for degradation, he who wants to make credibility, that of France and therefore his own, an asset for his future ambitions. The Minister of Economy and Finance stresses at all times the need to “accelerate debt reduction” – he repeated this before the executive office of Renaissance on Monday evening, recalling that “we are the party of responsibility”. “We must find the DNA of the majority, which requires good performance of public finances”, insists a close friend of the Minister of the Economy. It is no coincidence either that the latter announced to AFP on Tuesday the freezing of an additional 1% of appropriations for the 2023 budget to stay within the nails of the budgetary trajectory. What arguments must France put forward to maintain its status? “We can count four evaluation criteria, describes Pierre Cailleteau, specialist in government consulting at Lazard and who officiated at the Moody’s agency in a previous life: economic power, measured by wealth per inhabitant, quality and the predictability of institutions, the financial solidity of the State and the capacity to withstand exceptional shocks”.
According to information from L’Express, Bruno Le Maire met the leaders of Standard and Poor’s; his cabinet, as well as the direction of the Treasury, are also in contact with the agency. With one mission: to convince that the growth forecasts are realistic, to underline the ability to repay the debt and the desire to bring it down to 108% of GDP in 2027, to show that the objective of bringing the public deficit below 3% to the same date is viable. Beyond the weight of the debt, the agencies are attentive to the ratio of interest charges to income… a fortiori in a period of rising interest rates. “Let’s imagine that the financial charges double – which is quite plausible – it will then be necessary to find around 50 billion euros every year, that’s considerable! Analysts will seek to estimate whether the social and political consensus is sufficient in society to make the choice to repay the debt to the detriment of other public policy objectives, such as spending on schools or hospitals”, warns Pierre Cailleteau.
“We don’t do things for the rating agencies, and besides, whatever the decision, we will have to stick to our objectives”, insists Bercy, where we note that the other so-called government parties, starting with LR, have multiplied the amendments increasing the expenses during the debate on the pension reform: “Across the board, no one seems to really care about the issue.” However, “we must be vigilant”, believes the Lazard adviser, who recalls the recent example of the United Kingdom, whose budget “deemed unreasonable” last autumn had led to a loss of investor confidence and a soaring interest rates on sovereign debt. “Even for a country rated AA, there can be chain reactions, amplified by the volumes of debt in question, he adds. Better to have a robust story to tell, anchored on a credible financial anchor.”