France's Credit Rating: Why S&P Should Hold Off

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When S&P downgraded France's rating from AA- to A+ on October 17, 2025, it caught everyone off guard by making the move ahead of schedule. The agency outlined conditions for a possible further downgrade: budgetary deterioration beyond its projections or a significant decline in growth prospects. However, none of these factors have materialized since then.

On the public finance front, the situation remains unchanged. France still lacks an approved budget, and the exact outline of next year's deficit is unknown. It's unclear which measures will become permanent, which will remain temporary, and whether reliance on special legislation or decrees will be necessary. In other words, the situation is unclear, but it hasn't worsened since October.

S&P had noted in its statement that its projections for public deficit were as follows: 5.8% of GDP in 2024, 5.4% in 2025, 5.3% in 2026, followed by an increase to 5.6% in 2027 and 5.7% in 2028. The IMF, more pessimistic, envisions a deficit reaching 6.2% by 2028 if policies remain unchanged. Meanwhile, the latest projections from the European Commission are almost in line with S&P's, or slightly better for 2027 (5.3%).

These figures do not indicate either a collapse or an improvement, just stability amid uncertainty. This is precisely what leads the agency to exercise caution: while the situation hasn't cleared up, it hasn't deteriorated beyond its latest scenario.

Growth, another key criterion, has also remained consistent. According to both the IMF and the European Commission, France's outlook aligns with expectations, without any major negative shock. Nothing suggests a change in perspective at this point.

Finally, S&P recently upgraded Spain and Portugal, bringing them in line with France's rating (A+). This alignment reduces coherence tensions among eurozone countries and argues for maintaining the status quo.

Surprising Indulgence Toward France

The paradox of the French situation is evident: while France appears concerning on paper, the markets remain remarkably calm. The 10-year OAT-Bund spread, which had long been stabilized around 50 basis points, jumped to 75 basis points during the dissolution. Since then, it has hovered around this level without significantly reacting to political or budgetary events.

This complacency can be attributed to several structural factors well known to investors and credit rating agencies.

First, the diversification of the French economy, which, unlike more specialized countries, absorbs sectoral shocks more effectively. Additionally, the strength of the banking system reduces the risk of a costly bailout impacting public finances. Furthermore, the exceptional liquidity of the French bond market—large, deep, and active—enables it to absorb significant volumes without excessively distorting prices. This is a crucial advantage in the eyes of international investors.

As a result, public debt auctions continue without difficulty: demand consistently exceeds supply, and France maintains smooth access to the markets. Investors are also aware that, in the event of speculative tension, the European Central Bank has tools, such as the TPI, capable of intervening in the secondary market, with the mere existence of such instruments often being enough to cool speculative urges.

Another structural element is that France retains high private incomes and significant wealth, providing potential fiscal levers if necessary to honor debt service commitments.

All these factors create a paradoxical landscape: an uncertain budgetary situation, yet a robust financial context that reassures investors—to the point of maintaining a high level of confidence despite the deficit and political tensions.

S&P expected to maintain the rating

In this context, the most likely scenario is clear: the agency should not downgrade France's rating again, nor even shift it to a negative outlook. It might limit itself to a general comment on the budget trajectory, the political context, and associated risks, deferring its decision to a more comprehensible period.

For S&P, the timing is not suitable for another move: it already acted in October, the data hasn't changed, and markets continue to lend to France without difficulty. At this point, the ball is in the political court: as long as the budget remains unclear, the agency can only note the lack of transparency, not label it as a deterioration.

Therefore, maintaining the status quo seems the most rational decision. And, in a complex budget landscape, this might already be good news.