https://static01.nyt.com/images/2023/06/02/multimedia/00france-ratings-01-zvlj/00france-ratings-01-zvlj-facebookJumbo.jpg
President Emmanuel Macron is facing a host of challenges after nationwide protests erupted over his proposed pension plan. However, another challenge has arisen in the form of concerns about France’s finances. Recently, S&P Global warned that they still had a negative outlook on France’s creditworthiness. The warning comes after two other rating agencies have lowered their view of the country in the past month. The agency cited concerns about France’s ability to control its public finances amid a high level of general government debt. This is another hindrance to Macron’s efforts in boosting the country’s growth and competitiveness.
France’s finance minister, Bruno Le Maire, has received the announcement that the S&P Global maintained its investment-grade credit rating for France positively. But the economy, the second largest in the eurozone, is forecasted to remain slow until next year. The more significant concern is the country’s financial situation. France spent a large amount to support households and businesses facing inflation and pandemic lockdowns, surging its debt to 111 percent of economic output. This puts France in the same league as Greece, Italy, Portugal and Spain, the major eurozone economies holding the highest debt ratios.
S&P Global has warned that France’s credit rating could be lowered in the next 18 months if the country fails to curb government spending and bring down its debt.
This potential to downgrade worried the French Government. Mr. Le Maire and the Prime Minister, Élisabeth Borne, discussed the situation with S&P representatives before the announcement. S&P had warned in January that a downgrade was possible.
Some analysts have expressed concern about Macron’s ability to implement policies incentivizing growth and tackling the budget issue in the current social and political climate. The national protests broke out when Macron bypassed Parliament using executive power to impose a measure that raised France’s legal retirement age from 62 to 64. This change was met with opposition from almost three-quarters of voters in opinion polls.
The potential political stalemate and social unrest pose risks to Macron’s agenda, according to ratings agencies. Such a situation could make it harder to carry out policies to boost growth and manage the budget deficit.
Macron has attended several events to demonstrate his eagerness to drive France forward after the nationwide protests. For instance, he hosted a business conference attended by 200 global chief executives, including Elon Musk, where pledges for new investments worth €13 billion were made.
Macron has implemented various policies to boost the economy, including cutting business taxes, making it easier to hire and fire employees, and pushing unemployed people to look for jobs so as to create savings. Since 2017, France has remained the European country to attract the most significant number of foreign investments.
Despite such measures, France’s debt has risen to nearly €3 trillion due to the huge sums spent by the Government to stabilize the economy during the pandemic crisis. Additionally, inflation has increased the cost of debt servicing, which was low during the pandemic, and the run-up of interest rates by the European Central Bank has added further pressure.
France’s burden of public debt has jumped to €42 billion in 2022 from €31 billion two years ago and is expected to rise to €60 billion by 2027. Public finances have taken a significant hit, despite the measures that worked when the economic situation was better.
