(Bloomberg) — France was downgraded by Scope Ratings in another warning on the state of the country’s finances and the political impediments to containing a ballooning budget deficit.
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The Europe-based credit rating firm cut France to AA- from AA, with a stable outlook, bringing it to the same notch as Belgium and the Czech Republic, three levels below a top rating.
“Sustained deterioration of public finances and challenging political outlook drive the downgrade,” Scope said in a statement Friday.
The rebuke comes a week after Fitch slapped a negative outlook on its assessment of France’s creditworthiness. The country will face another test a week from now, when Moody’s has scheduled an update of its assessment. S&P, which downgraded France earlier this year, is due Nov. 29.
France’s finances are under intense scrutiny as President Emmanuel Macron’s plans to pare back the budget deficit have repeatedly slipped off course. Adding further uncertainty, his decision to call snap elections in June has clouded the outlook for policy in France, leaving it with a minority government that could easily be toppled by parliament.
Investors reacted by selling French assets, driving up the premium the country pays on its 10-year debt over Germany to more than 80 basis points, from below 50 earlier this year. That premium has ebbed to 71 basis points in recent days as the prospect of faster interest-rate cuts helps debt-laden countries like France and Italy outperform.
In an effort to steady the situation, Prime Minister Michel Barnier’s government presented a 2025 budget plan last week with €60 billion ($65.6 billion) of spending cuts and tax increases to bring the deficit to 5% of economic output from 6.1% this year. That’s a first step toward getting the gap within the EU’s 3% limit by 2029 — something the previous government had pledged to do by 2027.
Scope said it expects next year’s budget deficit to narrow to only 5.2% as the fragmented parliament will likely amend some of the measures planned by the government.
The ratings company also anticipates France missing the EU target with a gap at 3.8% in 2029 due to uncertainty surrounding the execution of fiscal plans as well as a moderate growth and inflation outlook. At that time it forecasts debt to reach 119% of GDP.
“This trajectory represents a key credit challenge limiting the government’s capacity to absorb future shocks,” Scope said.
The hung parliament in France is another risk for finances. Without a majority to back the budget, Barnier will likely have to use article 49.3 of the constitution to bypass a vote in the National Assembly — a move that increases the likelihood of no-confidence motions.
The leftist New Popular Front’s attempt topple the government this week failed to get enough support, but that would change if the far-right bloc led by Marine Le Pen backed a future censure motion.
Scope also flagged political risks further out linked to the presidential elections.
“Stronger opposition in parliament is likely to curb the government’s ability to reduce public spending and raise potential GDP growth, especially as the 2027 presidential election approaches,” Scope said.
–With assistance from Alice Gledhill.
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