Last Thursday, on France Inter, the Minister of the Economy Bruno Le Maire wanted to be reassuring: “We provided solid arguments on the credibility of our determination to reduce the debt, to bring the deficits below 3% and to maintain the public expenditure”. The American rating agency Standard & Poor’s (S&P) acknowledged this the next day, maintaining its opinion on French debt at “AA”. As six months earlier, the threat of a deterioration loomed, causing more excitement in the corridors of Bercy and certain newspapers than on the markets.
Not that financial players did not believe in bad news. But a demotion to “AA -” would have had no effect overall, except on the image of France and the executive. “We should not overestimate the impact of agencies, their opinion reflects already known situations,” observes Julien Marcilly, chief economist of Global Sovereign Advisory. At Rexecode, his colleague Denis Ferrand agrees: “The ratings confirm what is happening on the markets. Independently of S&P, we are already observing a spread [écart entre deux taux] of 50 basis points between France and Germany, compared to 30 at the start of 2022″. A sign that France, in the eyes of investors, remains a riskier debtor than its neighbor.
If S&P keeps an eye on French debt, its rating always being accompanied by a “negative outlook”, the main thing, to tell the truth, is elsewhere. “The government’s budgetary trajectory bet is strongly linked to an anticipation of growth that we consider exaggerated,” points out Denis Ferrand. In fact, Bercy still hopes for a GDP increase of 1.4% in 2024, well above the meager 0.8% now expected by the OECD. The Banque de France (0.9%) is also walking on eggshells. Above all, the sustainability of French debt depends on a major parameter: the evolution of interest rates. “We had become accustomed to very low rates, of the order of 1%, and the government assumed that this situation would continue. Today, the rate of 10-year French government bonds has climbed at 3%, after a peak at 3.5% in October”, warns Julien Marcilly. A transient or lasting phenomenon? This unknown changes everything. While the debt burden – the payment of all interest – represented 30 to 35 billion euros per year before the rise in rates, it could exceed 80 billion in 8 years, the duration of the maturity of the debt tricolor, believes the economist. “The fact is that long-term rates are high today and that finance ministers must finance their budgets at these rates. They cannot bet on a decline,” said Olivier Blanchard, former economic advisor, last month. of the IMF. Bruno Le Maire has won a respite. But the confectioners’ truce only lasts a few days.