PARIS (AFP) – France’s surging national debt is causing increasing alarm with the country risking a fresh warning yesterday over its credit rating after a downgrade.
Leading ratings agency Fitch in April lowered its rating on France’s debt, which is approaching EUR3 trillion (USD3.2 trillion).
It pointed to the country’s hung Parliament and public protests as risks to plans by President Emmanuel Macron to cut government spending.
Influential rival S&P Global update its advice yesterday, with the country risking further censure over its chronic overspending that last saw a government run a budget surplus in the 1970s.
“We will be uncompromising on the balancing of our public finances, on the reduction of our deficits and on the acceleration of the reduction of the debt,” Finance Minister Bruno Le Maire told France Inter radio on Wednesday.
He said he had spoken with S&P Global and presented his analysis personally, aware of the influence global credit agencies have on financial markets where downgrades usually increase the cost of borrowing money for governments.
“Whatever happens with S&P, it won’t change anything in terms of our determination to meet our targets for the public finances,” Prime Minister Elisabeth Borne said on Thursday.
Macron came to power in 2017 promising to balance France’s books and his first prime minister, Edouard Philippe, memorably told Parliament that the country was “dancing on a volcano that is rumbling ever louder”.
But unbudgeted tax cuts during Macron’s first term following the so-called “Yellow Vest” anti-government revolt and the Covid-19 pandemic in 2020 have led to a sharp deterioration in the public finances since.
The country’s debt currently stands at around 111 per cent of gross domestic product (GDP), from just shy of 100 per cent before Covid-19 when Macron put in place one of Europe’s most generous social safety nets.
The government has brought the annual public deficit down from a whopping 9.0 per cent of GDP in 2020 to a forecast 4.9 per cent this year.
Its projections show it falling to below 3.0 per cent by 2027 when Macron will leave office.
But ratings agencies and investors are increasingly concerned about the credibility of the 45 year-old centrist leader whose successful prior career in investment banking once saw him dubbed the “Mozart of finance”.
He has pushed through a pension reform this year in the face of the biggest demonstrations in a generation, but the proposed savings will be lower than first expected because of concessions made to trade unions and opponents.
On top of multi-billion-euro subsidies packages and price controls last year aimed at easing a cost-of-living crisis sparked by the war in Ukraine, Macron has since promised further tax cuts of EUR2 billion for the middle classes.
Increased defence spending – set to rise EUR400 billion over the next seven years – is a further drag on the public purse.