France’s Le Maire hangs on to debt reduction plan amid Fitch downgrade

Rating agency Fitch underestimates the impact of newly-approved structural reforms, including the pensions bill, said Economy Minister Bruno Le Maire after the credit rating agency announced it would downgrade France’s credit rating.

On Friday, Fitch – which assesses a country’s ability to repay its sovereign debt and default risks – announced it would downgrade France’s rating from ‘AA’ to ‘AA- with a stable outlook’, citing weak debt reduction plans and social unrest.

“Political deadlock and (sometimes violent) social movements pose a risk to Macron’s reform agenda” and could lead to continued generous, thus onerous, fiscal policy, Fitch warned.

In its assessment, Fitch further outlined that France’s “fiscal metrics”, including deficit and public debt levels, were “weaker than peers” and slammed the government’s plans to reduce deficit levels from 4.9% of GDP to 2.7% by 2027 which Fitch claims are based on over-optimistic economic growth expectations.

Fitch also noted that “expenditure pressures will remain high”, with up to a third of government spending “indexed to inflation (including pensions and social benefits)”.

According to the government, debt-related interest rates are expected to increase threefold because of inflation.

Le Maire pushed back on Fitch’s “pessimist” analysis on Saturday and highlighted France’s new debt reduction programme and its introduction of key unemployment and pensions reforms. He also pointed to reducing corporate taxation that would fuel production and growth.

The French ‘Stability Pact’, presented two weeks ago, looks to “accelerate” debt reduction, aiming for a four-percentage point fall by 2027, from 111.6% of GDP to 108.3%.

Both debt and deficit levels have exploded during the pandemic, with France spending an extra €240 billion – about 10% of GDP – since 2020 to support the economy and help manage the energy and inflationary crises of the past year.

Oppositions have heavily criticised the government’s plan, which they claim marks the start of a new wave of austerity.

“It is scandalous to see a minister begging to see the country’s rating raised again, telling Fitch he did well to make his people suffer”, far-left MP and economist Aurélie Trouvé tweeted.

Conservatives, most of whom were against the pensions reform back in March, also complained that France was living beyond its means and that significant spending cuts were imperative.

France’s new ‘AA-’ rating is similar to that of Belgium, the UK, the Czech Republic and Estonia.

(Theo Bourgery-Gonse | EURACTIV.fr)