Two, three, even four notches… Since the 2008 financial crisis, Moody’s has made a habit of reducing the sovereign rating of several countries in one go, and drastically, when the warning signals on their debt turned to negative. red. Greece, Spain, Cyprus or more recently Ukraine… The list of victims of the wrath of the American rating agency is long. The opposite case turns out to be much rarer. Just a year ago, Moody’s raised Portugal’s rating from Baa2 to A3, or two notches. Recognition of the work carried out for more than ten years to consistently redress the accounts of the Iberian State. This Friday, October 25, the rating agency is once again looking at the case of France, which, unlike its Lusitanian neighbor, has seen its public finances deteriorate significantly.
Many observers use the word “miracle” to describe this spectacular rise, initiated after the sovereign debt crisis. The figures relating to the country’s expenditure and revenue are from this point of view implacable. In 2010, the Portuguese public deficit peaked at 11.4% of GDP, while public debt reached its highest level in 2014 at 132.5% of GDP. The financial hemorrhage is only a distant memory: in 2023, the Lusitanian State posted an insolent positive budgetary balance of 1.2%, while the public debt had fallen back below 100%. Alongside it, France looks pale: its deficit is expected at 6.1% this year and its debt continues to explode – 112% at the last reading.
Portuguese consistency
Engaged in a race against time to reduce the French public deficit to 5% in 2025, Michel Barnier could already draw inspiration from Portuguese stubbornness, although his political destiny is not entirely in his hands. “In Portugal, there has been a national consensus to stabilize public finances, then straighten them out, within all successive governments, left and right. Despite the shocks and temptations, it is “Regarding, for example, Covid and the “shields” that resulted from it, this commitment has persisted over time”, relates Portuguese economist Ricardo Reis, professor at the London School of Economics and Political Science (LSE).
From 2010 to 2013, the government implemented a series of measures under the sign of austerity. He first attacked public service spending. “Civil servants were relatively well paid compared to the private sector and their salaries were among the highest in the euro zone,” says Ricardo Cabral, professor of economics at the Lisbon School of Economics and Management. The result: a significant drop of 27%. The VAT rate increases from 20 to 21%, while the retirement age is raised in 2013 to 66 years and 5 months, compared to 65 years previously. At a time when the NFP and the National Rally say they want to unravel the latest French reform in this area, the practical Portuguese case argues for the opposite path. The effort was then maintained for twelve consecutive years, without releasing the pressure. “We know that sudden budgetary adjustment attempts concentrated in a single year often end up backfiring on their authors,” emphasizes Ricardo Reis. The tenant of Matignon has been warned.
A disrupted economy
However, this prolonged course of budgetary austerity was not without consequences. “The Portuguese economy has become increasingly focused on sectors with low productivity and wages, such as tourism or construction. There are also problems in the functioning of the State and public services,” lists economist José Reis, professor at the University of Coimbra. Portugal was forced to considerably reduce public investment, notably abandoning its housing policy which today finds itself in a much more critical situation than in France.
“By encouraging tourism, which represents 15 to 20% of GDP, like Airbnb, many properties for sale or rental have been withdrawn from the market. Exempting foreign retirees from taxes for ten years has The number of properties on the market has also decreased and rents are very high today,” points out Eric Pichet, public finance specialist at Kedge Business School. Would another path have been possible? “During this period, the economy, society and the State were put into debt service,” notes José Reis. An alignment of wills of which it is difficult to see the beginning of the beginning in the ranks of the National Assembly.
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