The Fitch agency downgrades the rating of the France to AA-: what risks for the country?

Barthélémy Philippe / Photo credit: BERTRAND GUAY / AFP 07:46, April 29, 2023

Is France a bad student when it comes to public debt? The Fitch agency, one of the three main credit rating agencies, invokes recent social tensions related to the pension reform and their consequences as well as the prospect of lower-than-expected growth and downgrades the France's rating from "AA" to "AA-". What are the risks for the country?

If the France rating deteriorates further, interest rates will rise

When ratings are downgraded, borrowing rates on the financial markets are likely to rise. Currently, the France borrows at 3% against 2.5% for Germany whose public finances are better maintained.

With a debt of nearly 3,000 billion euros, each tremor in rates creates panic at Bercy as explained by economist Marc Touati. "If the France's rating is downgraded further, this interest rate will rise further. We could go up to 3.5 or even 4%."

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"It's a huge cost because it's going to cost even more to pay off the interest on the debt. But it is also a huge cost for the entire French economy because when interest rates on public debt rise, all France credit rates increase, whether for companies or for households. That means less investment, less consumption, and a real estate sector that will fall. These are dramatic consequences," he added to the microphone of Europe 1.

According to the budgetary stability program that has just been unveiled by Bercy, the debt burden could amount to 70 billion euros by 2027, an amount higher than the budget of the armed forces.