France Hit With Credit Downgrade as Debt Crisis Escalates
France’s deepening political turmoil has prompted Fitch Ratings to strip the country of its AA- grade, lowering it to A+.
The move leaves France a notch below the UK and aligned with Belgium, making Fitch the toughest of the three main rating agencies on the euro area’s second-largest economy.
The downgrade follows yet another collapse of government earlier this week, highlighting the gridlock that has plagued Paris since last year’s snap elections split parliament into rival blocs. Sebastien Lecornu was appointed prime minister on Wednesday, tasked with steering a budget through hostile lawmakers who rejected his predecessor’s plan to trim the deficit from 5.4% to 4.6% of GDP.
Fitch pointed to “fragmentation and polarization” as the key reason France is unable to deliver the fiscal consolidation needed to control its rising debt. With three governments since mid-2024 and presidential elections looming in 2027, the agency sees little chance of the deficit narrowing to 3% of GDP by the end of the decade. Instead, Fitch expects shortfalls above 5% in both 2026 and 2027.
Finance Minister Eric Lombard acknowledged the downgrade but stressed that consultations on a new budget are already underway. Even so, the loss of confidence has left French assets under pressure. Yields on 10-year bonds trade near the highest in the euro area outside of Italy, Lithuania and Slovakia, and the spread over German Bunds has nearly doubled since last year.
The rating cut underscores how France’s inability to rein in spending has left it more vulnerable than its peers. The country has repeatedly missed deficit-reduction targets, and Fitch warned that failure to pass a budget before year-end could trigger a “services votés” scenario, leaving no room for new consolidation measures.
While Fitch still forecasts modest economic growth – 0.6% in 2025, 0.9% in 2026 and 1.2% in 2027 – it warned that prolonged political paralysis may continue to sap business and consumer confidence. France’s high household savings rate and strong corporate balance sheets may cushion demand, but the fiscal outlook remains among the weakest in Europe.
Source: Bloomberg
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