Barely appointed, the new Prime Minister François Bayrou must face the first bad news: without warning, the American rating agency Moody’s downgraded France’s financial rating on the evening of Friday, December 13, dropping it from Aa2 with prospects negative, at the notch below, i.e. Aa3. This rating determines the rates at which a country can borrow from the markets. And the worse it is, the more these rates increase.
Finance Minister Antoine Armand “takes note” of this decision, indicating this Friday evening that the American agency had “highlighted recent parliamentary developments and the current uncertainty that results from them on the improvement of our finances”.
“A little strange” timing
A deterioration which occurs nine days after the motion of censure tabled by the left against the Social Security budget, and which caused the fall of the Barnier government. “It’s still a bit strange,” says a member of the ministerial cabinet. Either they deteriorated immediately (after censorship), or they believed that the country was going to get back on its feet and they maintained their rating. »
At the Ministry of Finance, there is fear of a runaway effect. What will the two other agencies, Fitch and S&P Global Ratings (formerly Standard & Poor’s) decide? And will the markets this time react more harshly, and start to really punish France for its current inability to pass a budget and launch lasting savings measures?
The blow is severe, especially since in the days following the censorship and resignation of the Barnier government, the markets remained relatively stable, mainly for two reasons. First, they had already anticipated for several weeks the risks that political agitation and discussions on the budget bill posed on rates. Then because they gave the executive time to reorganize and appoint a new head of government, before sanctioning or not.
The task becomes more complicated for Bayrou
For the record, at the end of October, Moody’s announced the maintenance of the rating, at Aa2, for France, but had changed its outlook from “stable” to “negative”, the agency considering it “unlikely” that the government would succeed to reduce the deficit to 5% next year.
In this, the agency followed the line drawn two weeks earlier by Fitch, the second of the three large agencies, which the day after the presentation of the draft budget by the government, had also announced the maintenance at AA- (the equivalent of Aa2 at Moody’s), but with a negative outlook, due to “increased risks linked to fiscal policy”.
Then at the end of November, it was the turn of the third agency, the main one, S&P Global Ratings, to give its verdict. And against all expectations, it had maintained the French debt rating at “AA-”, with no negative outlook, despite political and economic instability.
Barely two weeks later, Moody’s shocked the world by taking a decision that surprised the highest level of government, and intervened outside of all traditional calendars (the three agencies traditionally publish their verdict for the country twice in year, spring and fall).
The mission of François Bayrou, appointed this Friday, December 13 to the post of Prime Minister, promised to be arduous. Now she’s weighed down with yet another additional weight.