France: Sovereign Rating Under Pressure
Following the unexpected downgrade by S&P Global, attention is now focused on Moody’s. The American agency is set to deliver its verdict on French debt at the end of October. Should there be a downgrade, France would join the group of countries rated in the "intermediate" category, resulting in a sustained increase in its borrowing costs.
Budgetary Credibility Undermined
French public debt has now reached nearly 3.2 trillion euros, or 112% of GDP, an unprecedented level in peacetime. This enormous burden has fueled skepticism among rating agencies for several years. Last May, S&P Global Ratings downgraded France's rating by one notch, from AA to AA–, citing « limited prospects for fiscal adjustment » and an « uncertain budgetary trajectory. »
All eyes are now on Moody's, whose verdict is expected on October 25. For the moment, the American agency maintains an Aa3 rating, equivalent to that of Belgium, but warning signs are increasing. The government is counting on disinflation and a return to growth to stabilize the debt-to-GDP ratio by 2026. However, the promised savings (16 billion euros in the 2025 budget) rely on fragile assumptions: an oil price below $80 per barrel and 1.4% growth. The recent increase in long-term rates to over 3.5% on French bonds makes the target more uncertain.
Markets in a State of Calm Anticipation
Curiously, the markets are showing little reaction. The CAC 40 remains strong, buoyed by the luxury sector and easing US-China tensions. Institutional investors seem to have accepted the idea that France won't follow in Italy's footsteps, even with a similar fiscal trajectory. « Market operators are aware of the structural fragility of French debt, but they are implicitly betting that the ECB will continue to play the role of an invisible shield, » notes a bond strategist.
This bet is risky. The European Central Bank is gradually reducing its portfolio of sovereign bonds and will no longer reinvest all of the maturing securities. In other words, France will need to rely more on private investors to finance its debt—at a time when fiscal confidence is waning. The post-election fiscal shock in the US could also complicate matters. If Donald Trump continues his policy of reshoring and massive public spending, rising US yields could automatically increase the cost of capital in Europe. Moreover, international investors, who are already underexposed to French debt, might continue to decrease their holdings.
Rebuilding Sovereignty
Behind the numbers lies a deeper political issue: financial sovereignty. France is massively in debt to finance ecological transition, defense, pensions, and social policy. These are all legitimate priorities, but their total significantly impacts budgetary credibility. « It is likely that Moody's will downgrade the rating or switch to a negative outlook, which would amount to the same thing, » says an economist from IG France. « But the real risk is the gradual loss of market confidence rather than an immediate shock. »
In this context, the signal sent to foreign investors will be crucial. French debt remains sought after for its liquidity and still-high rating, but the confidence gap with Germany or the Netherlands is widening. If France wants to preserve its room for maneuver, it will need to demonstrate that it can control its fiscal path without relying on the ECB as an all-risk insurance.
This content has been automatically translated using artificial intelligence. While we strive for accuracy, some nuances may differ from the original French version.
