Less than a week after political turmoil roiled France following the collapse of President Emmanuel Macron’s government, Fitch Ratings downgraded France’s sovereign debt rating on Friday, raising questions about the country’s financial stability.
Fitch lowered the French rating to A+ from AA–, citing an increasingly fractured political landscape and the government’s overall inability to tackle a ballooning debt and deficit that have become among the largest in Europe.
“The government’s defeat in a confidence vote illustrates the increased fragmentation and polarization of domestic politics,” Fitch said in a statement. “This instability weakens the political system’s capacity to deliver substantial fiscal consolidation.”
The lower rating will put pressure on France’s borrowing costs, and follows downgrades or reduced outlooks for French debt from the two other major ratings agencies, Moody’s and S&P Global Ratings, since December.
Mr. Macron on Tuesday installed Sébastien Lecornu, the departing defense minister and a loyal ally, to be France’s next prime minister, a little over 24 hours after the country’s government fell in a no-confidence vote over a budget that aimed to find savings of at least $51 billion to put France’s finances back on track.
After years of outsize government spending and falling tax receipts, France’s budget deficit reached 168.6 billion euros ($198 billion), or 5.8 percent of its economic output, in 2024. The deficit is the country’s largest since World War II and well above the 3 percent limit required in the eurozone. The government collected €1.5 trillion in revenue but spent €1.67 trillion on national and local government operations and France’s generous social safety net.
To finance the deficit, France has increased borrowing. The national debt reached €3.35 trillion this year, representing 116 percent of economic output, one of the heaviest burdens in the eurozone. Interest payments for this year are projected to reach €66 billion, up from €26 billion in 2020, larger than the budget for education or the military.
Wary investors have driven the country’s borrowing costs above those of crisis-scarred Greece and well above those for Germany, the European Union’s largest economy. At 3.5 percent, the interest rate on France’s debt is still lower than that of Britain or the United States, but France’s economy is not as robust. If nothing is done, interest payments will become the biggest expense in the French budget in four years.
“France has a weak record of fiscal consolidation and compliance with E.U. fiscal rules,” Fitch said. It added, “There has not been a primary fiscal surplus since 2001.”
The immediate situation deteriorated in June after Mr. Macron abruptly dissolved the lower house of Parliament, the National Assembly, in a gamble that was intended to prevent a far-right party, the National Rally led by Marine Le Pen, from gaining more power.
That maneuver backfired, leading to a deeply divided Parliament. Two successive prime ministers have been ousted from power since then, after failed attempts by each to attack the deficit with sharp spending cuts.
Mr. Lecornu faces the same task. But with the same warring political factions on the left, right and center of Parliament, he has no clear majority. That will make it harder to pass a belt-tightening budget and assuage nervous international investors.
That picture is unlikely to change much in the run-up to France’s presidential election in 2027, Fitch said. There is “a high likelihood that the political deadlock continues beyond the election,” it added.
Liz Alderman is the chief European business correspondent, writing about economic, social and policy developments around Europe.
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