Standard & Poor’s downgrading of France’s credit rating on Friday is a hammer blow to President Macron’s reputation. The ratings agency has reduced France from AA to AA-, putting it on a par with the Czech Republic and Estonia and one notch below the UK. It is the first time S&P has downgraded France’s debt since 2013, although the firm Fitch did so in April 2023. This is comeuppance for years of ‘as much as it takes’ spending by a president haunted by the gilets jaunes movement.
The credit rating downgrade comes just a week before the European elections, where Macron’s Renaissance party is trailing the Rassemblement National (RN) by over 16 points. It is even more poignant given ex-banker Macron’s reputation as ‘the Mozart of finance’. In the notorious 2017 television debate for the second round of the presidential electino, Macron’s humiliation of Marine Le Pen’s financial ignorance of the euro sealed her defeat. It was therefore poetic justice for Le Pen to be able to excoriate her erstwhile rival for the ‘catastrophic management of the public finances’ on Friday.
Finding a solution to France’s alarming financial predicament is limited
But this downgrade is not merely the great maestro playing a wrong note. French finances have been discordant for years, with France’s debt to GDP ratio now standing at 112 per cent, which according to S&P is the third worst in the eurozone after Greece and Italy. The budget deficit sits at 5.5 per cent, way above government predictions. And the outlook is dismal. S&P contradicts the French government’s claim that the deficit will be reduced to 3 per cent in 2027 in line with EU requirements. They join the IMF, the EU Commission and France’s national audit commission in questioning the country’s ability to flatten its soaring debt trajectory.
The question remains as to how President Macron can reduce debt. He repeatedly refuses to raise taxes, which are the highest of any OECD country, claiming that France’s growth will be its saviour. But anaemic French growth has consistently undershot government predictions. That leaves cutting government expenditure. But French public services are in a dismal state. And Macron continues to pledge monies for a massive new green agenda and to raise French defence expenditure from just under 2 per cent of GDP to 2.5 per cent. Ironically, France’s debt servicing is running at the level of its €50 billion defence budget. France’s equivalent of the Office for Budget Responsibility predicts it will rise to over €70 billion a year by 2027. Unsurprisingly, Macron repeatedly exhorts the EU to take on greater collective debt to finance member state investment.
Finding a solution to France’s alarming financial predicament is limited because, as S&P warns, ‘political fragmentation adds to the uncertainty’. Absence of a working majority in parliament makes passing austerity measures, were Macron minded so to do, arduous. Censure motions on the most timid of government reforms were already tabled for this week before the S&P downgrade. They are unlikely to pass given sharp divisions amongst the opposition, but they are getting tighter every time. A humiliating defeat of Macron’s party on 9 June by the RN on the one issue for which Macron has nailed his colours to the mast – Europe – will render the National Assembly even more unruly. Macron could be forced to dissolve parliament to break the stalemate, as Marine Le Pen has called on him to do, but that would be a gift to the RN given the state of the opinion polls.
The S&P downgrade, in conjunction with humiliation on 9 June, will also handicap Macron in his cherished EU. Other EU nations have begun the process of debt reduction. With diminished political credibility Macron will be at pains to promote France’s claims to EU commissioner positions as well as the EU budget. France’s only marginal advantage is that its parlous financial position cannot lead to a run on the currency given the euro’s support from frugal nations, though it may increase the spread on its bonds.
France is approaching the point Portugal, Ireland, Italy, Greece and Spain found themselves at in the great European debt crisis in the wake of the 2008 financial crash. It is at the mercy of any international shock. France may be too big to fail for the whole European project, but it may find itself in ‘special financial measures’ if its profligacy continues. In the event of Marine Le Pen, or Jordan Bardella, winning the 2027 presidential election, it is not too difficult to imagine the EU Commission taking pleasure in hamstringing the new administration. And it will be thanks to their disciple, Emmanuel Macron, that they will have been able to do so.
