One week before the European elections, it is a slap in the face for the majority, already in bad shape in the campaign.
Within the majority, as in Bercy, we had been preparing for this warning shot for weeks, while of course hoping to escape, once again, the ax. Alas, after having put it under a negative outlook for two years, the Standard & Poor’s agency has decided to lower the rating of French sovereign debt. The announcement came Friday evening. After losing its triple A (the equivalent of a 20 out of 20) during the financial crisis, during Nicolas Sarkozy’s five-year term, France must now mourn its AA (18 out of 20).
Indeed, France’s rating was lowered by the S&P rating agency, from “AA” has “AA-” sanctioning the “deterioration of the budgetary position” from the country. “France’s budget deficit in 2023 was significantly higher than we had expected”justified the American company in an analysis accompanying the note, which expects that the deficit cannot return below 3% of GDP by 2027.
“I take note of this decision. It changes nothing in my determination to restore public finances”said in an interview at the Parisian , Minister Bruno Le Maire. “We started doing it, we continue. Three rating agencies have maintained France’s rating since January: I have not, however, slowed down our savings efforts. he continues, while promising that this deterioration will not impact the daily lives of the French. And to add: “And I will tell you, in reality, the main reason for this deterioration is that we saved the French economy.” The minister thus intends to continue his strategy of “re-industrialize, achieve full employment and keep the deficit below 3% in 2027.”
One week before the European elections, this is obviously a hard blow for the majority, already struggling in the campaign. Especially since the decision of the main rating agency erases the satisfaction granted a month earlier by its competitors Moody’s and Fitch. The oppositions should seize this setback with relish this weekend. Some began to criticize the government on Friday evening. “This is where the pitiful management of public finances of the Macron/Le Maire duo is leading us!” wrote on X Eric Ciotti, president of the Republicans. And it must be recognized that on the subject of public finances, the executive has given the stick to be beaten. Since 2017, debt to gross domestic product (GDP) has soared from 97% to 111% in 2023. Bercy forecasts a landing at 112% in 2027, after a peak at 113% in 2025.
A succession of crises
The executive has no problem explaining that the surge in debt has been exacerbated by the succession of crises that Emmanuel Macron has faced since his election: yellow vests, covid then inflation. However, the argument does not stand up to comparison: on average in Europe, the debt fell during the period. French public spending thus represented 57% of GDP at the end of last year, eight points above the euro zone average, while the French continue to complain about the deterioration of public services.
The year 2023 marks a break, with an astronomical public deficit of 5.5% even though the country has come out of exceptional protection measures against inflation. The state budget deficit reached 173 billion euros, 21 billion more than in 2022, 9 billion more than initially planned in the finance law for 2023. “This is close to the record level of 2020, which, I remind you, was hit hard by the health crisis. The comparison with 2019 is even more striking, since the deficit has almost doubled in four years.was alarmed, in a recent interview with Figaro, Pierre Moscovici, the first president of the Court of Auditors.
Identify savings
In order to redress the situation, Bercy promises savings. For the 2024 budget, 10 billion was passed by decree in January, another 10 billion was distributed between communities and the State. For 2025, the ministry is counting on around 20 billion in savings. It remains to identify them. Expenditure reviews have been launched, particularly around the social sphere or aid to businesses, and their conclusions partially released. However, for the moment, there is no question of making them public. Any painful announcements will wait until the end of the campaign.
In its latest review of the French economy, the IMF noted that in a scenario with unchanged policy, which only integrates “measures adopted and clearly documented”, “the public deficit will remain high at 5.3% of GDP in 2024 and will decrease slightly, to 4.5% in 2027”. Far from the government’s objectives of a deficit of 5.1% and 2.9% respectively. The IMF’s assessment, however, does not take into account the latest reform of unemployment insurance. According to government forecasts, it could generate up to 4 billion euros in savings and above all increase the country’s potential growth. The fact remains that the Social Security deficit, announced this Thursday, should reach 6 billion euros more than expected in 2024, enough to erase the effects of the reform.
Don’t be entertained by agencies
“The French do not believe in full employment. The current situation is a good balance for people, between finding work and enjoying protection. But this is not a good balance for the country, we believe in Bercy. With a constant social model, we cannot achieve full employment. We must therefore move from a welfare state to a state that protects. » At the Ministry of the Economy, where S&P’s decision was known late Friday morning, the slogan is clear: “we are not going to let ourselves be entertained by the decisions of the agencies!”. Bruno Le Maire also wanted to organize a drink on Thursday evening to celebrate his seven years at the head of the ministry, “a friendly moment with 150 current and former employees”.
The fact remains that agents of Agence France Trésor, the Bercy management responsible for placing French debt, will be watching with excitement for the opening of the financial markets on Monday morning. Last year, Fitch’s decision to downgrade the French rating did not cause the debt security to move one iota. The same should theoretically be the case on Monday, with French bonds remaining very popular with investors. But no institution, nor country, is ever immune to a change in market sentiment.