France: Credit Downgrade Amid Political Turmoil

France has suffered a surprise blow to its financial credibility after S&P Global Ratings downgraded the nation’s sovereign credit rating from AA- to A+, citing rising political uncertainty and concerns over fiscal discipline. The move, announced unexpectedly late Thursday, caught investors off guard, as S&P typically schedules rating reviews in advance.

Political Instability and Fiscal Concerns

S&P said the downgrade reflects its assessment that “policy uncertainty will affect the French economy by dragging on investment activity and private consumption, and therefore on economic growth.” The agency warned that ongoing political tensions could hamper the government’s ability to carry out fiscal consolidation, a key factor given France’s debt burden of around 110% of GDP, among the highest in the Eurozone.

The agency also cautioned that persistent budget deficits may complicate France’s compliance with EU fiscal rules, potentially undermining long-term investor confidence.

Government Response

Finance Minister Roland Lescure acknowledged the gravity of the downgrade, calling it a “collective responsibility” of both the government and parliament to ensure the 2026 budget is passed on time. He reaffirmed the government’s goal to reduce the fiscal deficit to 3% of GDP by 2029, in line with EU requirements, and insisted that “France will not compromise on financial credibility.”

However, analysts warn that deep political divisions and public resistance to spending cuts could make these targets increasingly difficult to achieve, especially as the government faces mounting pressure over social policies and tax reforms.

Market and Ratings Impact

Despite the downgrade, other major rating agencies have adopted a more stable stance:

Moody’s maintains France’s rating at Aa3 with a stable outlook.
DBRS Morningstar continues to rate the country at AA.

Still, S&P’s move is expected to push up French borrowing costs, as investors demand higher yields to compensate for rising fiscal risk. The yield on France’s 10-year bond edged higher in early trading, reflecting renewed market caution.

Broader Implications

The downgrade underscores the importance of fiscal credibility in an environment of high debt and moderate growth. With the French economy already struggling under inflation pressures and weak productivity, restoring investor confidence will be essential in the months ahead.

As one analyst noted, “The message from S&P is clear: political uncertainty now carries a real financial cost.”

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