France in crisis: Fitch downgrades credit rating to A+!

France in crisis: Fitch downgrades credit rating to A+!

France is facing new challenges! The international rating agency Fitch has downgraded the country's credit rating from AA- to A+. This decision, which has deeper political and economic implications, will make it more difficult for the French government to finance its national debt in the future. What is particularly important is that France has the highest debt in the EU at around 3.3 trillion euros and the debt ratio, at 114 percent of gross domestic product, is the third highest in the union, only exceeded by Greece and Italy. According to Radio Ennepe Ruhr, Fitch experts assume that national debt will increase in the future, which endangers the country's economic stability.

If you look closer, you can see that France's budget deficit is 5.8 percent of GDP, which is above the three percent limit set by EU law. This has already led to an EU deficit procedure against France in July 2024. The country's political turbulence is a further complicating factor. Three different governments have been in power in Paris since mid-2024, with former Prime Minister François Bayrou having to resign after less than nine months due to a lost vote of confidence. His plans for austerity measures met with strong popular protests. Der Tagesspiegel mentions that the new Prime Minister Sébastien Lecornu now has the challenge of closing the gap between the political situation and citizens' expectations.

Political uncertainty and economic challenges

The downgrade not only has direct financial consequences, but also raises questions about the future design of economic reforms. Fitch cites the low chance of success for these reforms as another reason for the decision, signaled by domestic political polarization and the lack of political stability. Yields on 10-year French government bonds have already risen above those on Greek securities, adding to concerns about France's financial stability.

Former Prime Minister Bayrou was critical of the downgrade and warned of the economic consequences. Given these developments, there is also speculation as to whether the European Central Bank (ECB) may purchase government bonds to support France. Éric Coquerel from the parti d’extrême gauche (LFI) also sees the downgrade as the result of catastrophic rhetoric about the financial situation, which further increases uncertainty.

A look at the European ratings

For a broader perspective, it is worth taking a look at the creditworthy countries in Europe. As seen on Trading Economics, the platform rates countries' creditworthiness on a scale from 0 (likely to default) to 100 (risk-free). Such ratings are influenced by numerous economic indicators and financial markets. Despite the crisis, however, it is clear that France is still considered one of the most important economic powerhouses in Europe.

The coming months will show what measures the new government will take and whether it will be possible to regain the trust of the markets. However, one thing is certain: a hot autumn lies ahead in Paris, requiring both political and economic decisions that will have far-reaching consequences.