France’s Le Maire says he ‘saved the French economy’ amid credit rating downgrade

5 months ago 12

French Economy and Energy Minister Bruno Le Maire claimed to have “saved the French economy” after the COVID pandemic and the war in Ukraine after Standard & Poor’s Global Ratings downgraded the country’s credit rating on Saturday.

On Friday, S&P Global Ratings lowered France’s credit rating from ‘AA’ to ‘AA-’, citing a “deterioration” of the “budgetary position”.

“Contrary to our previous expectations, France’s general government debt as a share of GDP will increase due to larger-than-expected budget deficits over 2023-2027,” the rating agency said.

Meanwhile, Le Maire’s ministry has presented a deficit of 5.1% of GDP in 2024, a far cry from his original target of 4.4%. The rating agency also warns that public debt could rise to 112% of GDP in 2027, compared to France’s expected 108.1%.

The government remains adamant that the deficit will fall below the 3% threshold by 2027 – an obligation under EU Maastricht Treaty rules – but S&P is worried that this seems unlikely now.

In 2023, France was the third most indebted country in the EU, after Greece and Italy, at just over 111% of GDP. It had the fourth-largest budget deficit after Italy, Hungary and Romania.

‘Saving the economy’

S&P’s reasoning is not based on “doubts in the government’s economic strategy, which has been approved, but the country’s political fragmentation. The government is lacking [political] support,” Le Maire said as a comment to the downgrade on Saturday.

“[W]e believe political fragmentation adds to uncertainty regarding the government’s ability to continue implementing policies that increase economic growth potential and address budgetary imbalances,” S&P said.

“I saved the French economy [by] avoiding a recession, social destruction and citizens’ concerns over gas price increases. I protected them,” he claimed.

France introduced one of the EU’s most extensive ‘energy shields’ to cap energy prices at the start of the war in Ukraine – but this was rolled back in 2024 in favour of more targeted state aid.

Earlier this year, Le Maire announced he would implement an additional €20 billion budget cut in 2024. Economic growth forecasts have fallen from 1.4% to 1%, making it impossible to meet France’s 2024 budget targets.

Half of the money would come from cuts to public spending and ministries’ general budgets.

“The gravity of the situation our public finances are in is obvious, and we have our backs to the wall,” Pierre Moscovici, president of France’s Court of Auditors, told the weekly La Tribune Dimanche on Sunday.

France’s fiscal situation is under close scrutiny by the European Commission, and the country could face an excessive deficit procedure (EDP) in the coming weeks.

The European Commission can trigger an EDP to force member states to reduce deficits that are deemed too high. When this happens, the targeted countries have to come up with reduction plans and deadlines – otherwise, they risk being fined.

(Theo Bourgery-Gonse | Euractiv.fr)