France credit score downgraded to lowest on record to A+ amid political crisis

France"s credit score has been downgraded to its lowest on record amid ongoing political turmoil. The US ratings agency, a leading institution assessing the financial stability of sovereign borrowers, lowered France"s rating from "AA-" to "A+". The agency indicated that France"s debt is expected to continue rising until 2027 unless urgent measures are implemented.

This downgrade presents additional challenges for new Prime Minister Sébastien Lecornu, who is likely to lead a minority government as he prepares the budget for the upcoming year. The agency noted that the current political instability hampers the government"s ability to achieve significant fiscal consolidation and expressed skepticism about the previous administration"s goal of reducing the fiscal deficit to three percent of GDP by 2029.

A downgrade typically increases the risk premium that investors demand for purchasing government bonds. However, some financial experts believe that the debt market may have already anticipated this downgrade. On Tuesday, the yield on French 10-year government bonds rose to 3.47 percent, nearing levels seen in Italy, which has been among the eurozone"s poorer performers.

Higher yields could lead to increased costs for servicing France"s debt, which has been described as "unbearable." With Macron"s allies lacking a parliamentary majority, Lecornu may need to make compromises that could hinder efforts to cut spending and raise taxes. To secure sufficient support, he may consider concessions to the Socialists, such as increasing taxes on the wealthy and modifying Macron"s 2023 retirement reform.

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Fitch Ratings has projected that France"s debt will rise to 121 percent of GDP by 2027, up from 113.2 percent in 2024, without a clear path for stabilizing debt levels in the following years.