Following in the footsteps of Moody's, Standard & Poor's has downgraded France's credit rating to A+.

S&P downgraded France's credit rating from AA- to A+, dealing another blow to the country's reputation. Currently, the minority government in France is struggling to address the growing debt burden through relevant legislation. S&P stated that despite the submission of the 2025 budget proposal, the country's budget uncertainty remains at a "high level". This downgrade means that within less than a month, France has lost two "AA" ratings from three major credit rating agencies, which may force funds with extremely strict investment standards to sell French bonds. According to S&P, France (with a stable outlook) is currently at the same level as Spain and Portugal, six levels above junk status. France's next rating assessment will be conducted by Moody's on October 24th. In recent weeks, France's credit rating has experienced consecutive downgrades, including from Fitch and Deloitte. The series of rating downgrades is concerning as the long-term political instability could potentially evolve into a public finance crisis. Last year, the French National Assembly dismissed two prime ministers due to budget plan issues. Previous interim elections resulted in a split parliament with irreconcilable minority groups. The current Prime Minister, Sbastien Lecornu, remains in office because he compromised with opposition lawmakers by agreeing to increase fiscal deficit spending and suspending President Emmanuel Macron's pension reform. This 39-year-old prime minister also abandoned the use of a constitutional provision known as Article 49.3. The previous government had relied on this provision to bypass the voting process on fiscal legislation. This move has raised doubts about lawmakers reaching a consensus on the 2026 budget before the end of the year. Controlling the runaway fiscal deficit will require implementing some unpopular measures to cut spending or increase taxes. The draft bill submitted by Lecornu to parliament this month aims to reduce the budget deficit as a percentage of economic output from 5.4% this year to 4.7%. However, he stated that lawmakers have the right to negotiate broader targets, as long as the deficit remains within 5% and France can achieve the long-term target of 3% by 2029. S&P stated, "France is experiencing the most severe political turmoil since the establishment of the Fifth Republic in 1958. Even if early parliamentary elections are held and a clear majority is obtained in the National Assembly, this does not guarantee a path to a reliable medium-term fiscal consolidation plan or economic reform." Faced with this credit rating downgrade, French Finance Minister Roland Lescure reiterated the government's determination to achieve this year's 5.4% fiscal deficit target and stated that France will continue to work towards reducing the deficit as a percentage of GDP to below 3% by 2029. In a statement, he said, "Now, the government and parliament both have a responsibility to ensure a budget consistent with this framework by the end of 2025." Since Macron announced the elections in June 2024, France's political and fiscal issues have led to a sell-off of French assets, causing the country's borrowing costs to rise. The spread between French and German 10-year government bond yields (a key measure of risk) has risen by over 85 basis points in the past few weeks, compared to less than 50 basis points before. Lecornu promised last week to suspend Macron's proposed gradual increase of the minimum retirement age from 62 to 64. He stated that if the pension reform is postponed until the next presidential election in 2027, France would lose 400 million euros in 2026 and 1.8 billion euros in the following year. The French Prime Minister believes that these losses must be offset by spending cuts rather than by increasing the fiscal deficit. S&P stated that if France's fiscal situation deteriorates beyond their expectations or if there is a significant deterioration in economic growth prospects, the agency may further downgrade France's rating.