François Bayrou barely had time to settle down in Matignon on Friday December 13 when the Moody’s agency downgraded France’s sovereign rating in the following hours, in view of the “political fragmentation” of the country, which it considered unfavorable to the rapid recovery of public finances. Moody’s lowered its Aa2 rating, which was accompanied by a “negative outlook” signaling a probable deterioration in the more or less short term, to Aa3, with a stable outlook.
The agency, which until then ranked France slightly above its competitors, joins them: S&P ranks France AA- with a stable outlook, and Fitch AA- with a negative outlook. However, everything still reflects good, even high, credit quality.
The agency has repeatedly expressed concern about the situation of political uncertainty that has gripped France since the dissolution of the National Assembly announced on June 9 by President Emmanuel Macron. The previous rating was placed on a negative outlook only at the end of October, and Moody’s announced on the same day of the censorship of Michel Barnier’s government, December 4, that this event could only be “negative” for the rating. credit of France. Bercy nevertheless seemed not to expect such rapid new action, of which the Minister of Economy and Finance Antoine Armand immediately “took note”.
For Moody’s, France’s public finances will be “considerably weaker” in the next three years than it previously forecast, due to “political fragmentation more likely to prevent significant fiscal consolidation.” She judges the probability “low” of seeing the next government “sustainably reduce the extent of the budget deficit beyond next year”.
120% public debt in 2027?
While the Barnier government was banking on a public deficit of 6.1% of GDP this year, and had constructed its budgetary texts on the basis of a public deficit of 5% in 2025, to return below the limit of 3% tolerated by Brussels in 2029, Moody’s doesn’t believe it. The rating agency anticipates a public deficit stagnating at 6.3% of GDP in 2025, and still at 5.2% in 2027. Thus, instead of reducing, the public debt would increase from 113.3% of GDP in 2024 to around 120% in 2027. “If debt capacity has long been a relative asset of France in terms of credit, this asset is eroding compared to its peers benefiting from a similar rating”, observes Moody’s.
Antoine Armand estimated in his press release that the appointment of François Bayrou provided “an explicit response” to the concerns of the rating agency. Michel Barnier and François Bayrou indeed showed great attention to these questions during their very courteous handover of power on Friday afternoon.
The first wanted to leave a solemn message: “We would be wrong to forget the deficit and the debt […] otherwise they will suddenly remind us all.” “No one knows the difficulty of the situation more than me,” replied the second, recalling having “taken inconsiderate risks in (his) political life to pose (during ‘elections, including presidential elections, in which he was running) the question of debt and deficits.’ “And everyone said ‘he’s completely crazy, we’re not running a campaign on debt,’ he recalled smiling.
Judging that this is both a financial and “moral” problem, with the weight that the debt places on children, the new tenant of Matignon promised that in the face of this situation “inherited from entire decades” , his “guideline” would be “to hide nothing, to neglect nothing and to leave nothing aside”.