France descends to the rank of simple “A”. The Fitch rating agency lowered, Friday, September 12 in the evening, the sovereign note of France, from Aa- à A+. The reasons are known to all: persistent political instability, and budgetary uncertainties which prevent the sanitation of very degraded French public accounts. Four days after the fall of the Bayrou government and the appointment of a new Prime Minister (the third in one year), Fitch draws up a severe observation of the public finance situation in the second economy in the euro zone.
France has so far benefited from a note from a higher notch, Aa-, which had been maintained last March. The best rating, triple A (or AAA) means that a country is completely solvent: France lost this rating in July 2013, after having kept it 13 years, while its debt then peaked at 93.4 %. A year later, the French note had gone from AA+ to AA, due to “deviation in the budgetary objectives”. In April 2023, Fitch decided to lower the French note to AA-, mainly because of social tensions around the pension reform. A note equivalent to 17/20, which meant that the French debt was still so far “very good quality”.
The improbable passage under 5 % annual deficit
But this year, the French public finances among the most deteriorated in the euro zone change France in the club of the Simple A with the note A+, thus joining Belgium, Malta and Estonia. French debt reached 113.9 % of GDP at the end of March and the deficit was hoped for 5.4 % of GDP in 2025 by the Bayrou government. Growth could reach 0.8 %, according to figures from the Statistical Institute (INSEE) this week, but it is only carried by a few sectors and the economy is generally suffering from a generalized lack of confidence.
More specifically, this drop in note is explained by the fact that Fitch judges improbable to bring the French public deficit back under 3 % of GDP in 2029, as the outgoing government aims to put France back into European nails. Because for him, the new discussions to come on the 2026 budget should reduce the extent of the budgetary effort which had initially been announced to 44 billion euros by François Bayrou. What compromise the objective of a deficit projected at 4.6 % next year: the rating agency sees it remain greater than 5 % in 2026 and 2027.
Other countries in the euro zone
Only three countries in the euro zone are still part of the Triple A elite club: Germany, the Netherlands and Luxembourg. The latter also comply with the last Maastricht rule: maintain an annual public deficit of less than 3 %. More generally in Europe, Sweden, Norway, Denmark, Switzerland and Liechtenstein constitute the rest of the Triple A club.
With its 5.8 % annual deficit, France now holds the euro area deficit record. Relative to its solid economy, this deficit does not make France one of the least well rated countries in Europe: as a comparison, Italy, displaying a deficit of 3.4 % and a public debt of 135 % of its GDP, is noted BBB. Portugal, praised by Fitch this year for its deleveraging (with a public debt at 94 % of GDP) is noted A-. At the bottom of the ranking, with a debt of more than 153 %, Greece still suffers from the note of BBB-.
The degradation of this French note, which measures France’s capacity to repay its debt, still marks a turning point for the country. By allocating the equivalent of a 16/20, of “upper average” quality, the Fitch note could lead investors to sell their debt titles for less risky investments and cause rate increases. According to Fitch, France’s debt would continue to swell up to 121 % of GDP in 2027, “without a clear stabilization horizon” after this year of presidential election, always with the risk of political blocking.
