08. May 2023
Hugues Chevalier, Economist
Public debt, which has been on the back burner since the health crisis, is back. Indeed, on 28 April, the rating agency Fitch downgraded France’s sovereign debt by one point to AA-, which is a real wake-up call for all European sovereign debts. The agency considers that the trajectory of French public debt (111.6% of GDP in 2022 or 2,950 billion euros), the weak economic growth, the current public deficit (deficit expected in 2023 of 5% of GDP) and the political blockages in the hexagon increase the risk associated with the sovereign debt. France’s downgrade may be a prelude to a downgrading of the debt of several eurozone countries facing similar problems, namely an increase in the cost of debt due to the rise in interest rates by the European Central Bank and the drift of public finances after the “whatever it takes” episode during the Covid crisis. Furthermore, as the eurozone countries are due to present their forecasts in Brussels on 3 May as part of the stability programme, Fitch points out that French public debt is expected to rise to 114.3% of GDP in 2027, rather than 108.3% as forecast by the government. France’s ability to borrow is obviously not in question, but the cost will be higher following the downgrade. And it is hard to see how the French government will be able to finance the tax cuts it has announced for the “middle classes” without further compromising its public finances. In any case, France’s downgrade is a reminder to all European countries that the “free-spending” of recent years is over and that they must now cut back on their lifestyle.