France in ‘close talks’ over debt rating

PARIS - France is in “very close talks” with debt ratings agency Standard and Poor’s, Prime Minister Elisabeth Borne said yesterday, after a downgrade from rival Fitch reignited government finance concerns in the EU’s second-largest economy.

Finance minister Bruno Le Maire had offered “detailed explanations to Standard and Poor’s of everything we’re doing to get our public finances under control” ahead of their rating decision in early June, Borne told Jewish community broadcaster Radio J.

Citing “relatively large fiscal deficits and only modest progress with fiscal consolidation,” Fitch last month downgraded France’s debt rating to AA-, several notches below the top AAA class awarded to countries including Germany and The Netherlands.

Such ratings help determine borrowing conditions when governments go to financial markets to raise money.

France’s debt hit almost 112% of annual output by the end of last year, driven by a “whatever-it-takes” response to the coronavirus crisis and generous support to households and firms through the energy price crunch provoked by Russia’s invasion of Ukraine. “We’ve introduced reforms; we’ve recently revealed a path for government finances into 2027... reducing our deficit to 2.7% of GDP” from its present level closer to 5.0%, Borne said.

The finance ministry hopes controls on government spending, combined with faster growth, can bring overall debt levels down to 108% of GDP in the coming five years.

With less optimistic assumptions, Fitch last month forecast France’s debt-to-GDP ratio would in fact grow to more than 114% over the same period. “We are acting to support our firms and economic growth, to support activity,” Borne told Radio J. “We are not simple spectators waiting to see what economic conditions will be like,” she added.

In its April note, Fitch did praise a stronger labour market in France thanks to reforms introduced since President Emmanuel Macron took office in 2017, with historically stubborn unemployment now down to 7.1%.

Macron’s widely-contested pension reform raising the retirement age to 64 -resulting in mass demonstrations and intense opposition in parliament -- “could further support the labour market and possibly improve growth prospects in the medium to long-term,” Fitch added at the time.