France Downgraded to A+ as Rising Debt and Political Instability Threaten Fiscal Outlook

Fitch Ratings has downgraded France’s long-term foreign-currency issuer default rating from AA- to A+, marking the country’s lowest sovereign rating on record. The agency attributed this downgrade to the rising public debt, which now exceeds 113 per cent of GDP, and to the country’s political fragmentation, which impairs its ability to enact necessary fiscal consolidation.

The decision comes amid significant political instability, including the collapse of Prime Minister François Bayrou’s minority government following a no-confidence vote, which occurred after he attempted to propose €44 billion in spending cuts to reduce the budget deficit, making him the latest in a sequence of French premiers to fall in less than two years.

The confidence vote illustrated growing polarisation and weakened governance capacity, particularly pressing given the requirement to draft and pass the fiscal year 2026 budget. With France’s budget deficit estimated at 5.8 per cent of GDP, the highest in the eurozone, and expectations of continued expansion of public indebtedness, Fitch warned that debt would continue to rise, projecting that it could reach around 121 per cent of GDP by 2027, barring decisive reform.

The downgrade, accompanied by a stable outlook, increases pressure on new Prime Minister Sébastien Lecornu, Macron’s newest appointee, to secure parliamentary consensus for a credible budget, reconcile political divides, and reassure investors. Meanwhile, France’s 10-year government bond yields have climbed, narrowing the spread over benchmark German bonds, while markets warn of potential forced sales by investors whose mandates restrict holdings in lower-rated sovereign debt.

Despite these challenges, Fitch still cited France’s large diversified high-income economy, solid EU membership, and stable banking sector as buffers against immediate financial distress.
Source:

Reuters; Financial Times; Bloomberg; The Guardian.