Fitch Ratings on Friday reportedly lowered France’s credit rating, delivering a sharp warning to investors about the country’s worsening public finances and political gridlock.
The move comes just days after Prime Minister François Bayrou was ousted in a failed effort to rein in the ballooning deficit.
Bayrou, who lost a confidence vote this week, had proposed slashing €44 billion, or $51.8 billion, from the budget.
But his fiscal plan collapsed in the face of opposition, leaving France with a deficit equal to 5.8 percent of its domestic output last year — nearly double the 3 percent ceiling set by the European Union.
President Emmanuel Macron swiftly tapped Sébastien Lecornu, a centrist and former defense minister, to replace Bayrou. Yet Lecornu is the fifth prime minister since Macron’s 2022 reelection, a sign of the deepening instability in France’s political system.
Fitch cut France’s debt rating to A+ from AA-, with a stable outlook. The agency warned that polarization and fragmentation in Parliament are making it nearly impossible for the government to deliver the kind of fiscal discipline needed to restore investor confidence.
“The government’s defeat in a confidence vote illustrates the increased fragmentation and polarisation of domestic politics,” Fitch said. “This instability weakens the political system’s capacity to deliver substantial fiscal consolidation and makes it unlikely that the headline fiscal deficit will be brought down to 3% of GDP by 2029, as targeted by the outgoing government.”
France’s debt has now soared to 114 percent of GDP — higher than its annual economic output — and the state spends more servicing its debt than it does on national defense.
Analysts at Natixis noted that rating agencies have consistently cited “deteriorating French public finances and political uncertainties” as the basis for their negative outlook.
The downgrade follows earlier warnings from Fitch, which last cut France’s rating in April 2023 and assigned a negative outlook in October 2024. Peer agencies Moody’s and S&P Global Ratings are expected to issue their own decisions in the coming months.
Markets had anticipated some risk of a downgrade, and Deutsche Bank analysts said much of it was already priced into French government bonds, known as OATs.
Even so, the spread between French bonds and German benchmarks has widened, according to ING economist Charlotte de Montpellier.
She noted that while the current situation is less severe than the eurozone debt crisis of the early 2010s, “fiscal consolidation will be needed simply to keep the deficit from rising further.”
The new government faces daunting challenges. Lecornu must find a way to pass a 2026 budget through a parliament fractured into three ideological blocs. Both the left and far right demanded that Macron appoint one of their leaders to build consensus, and nationwide protests erupted this week as frustrations mounted.
Adding to the pressure is a slowing economy, where household consumption has stagnated and exports have slumped in recent months — a downturn aggravated by U.S. tariffs on French goods.
While Fitch said a full-blown financial crisis could likely be averted, the warning is clear: France’s debt and political dysfunction are now colliding in ways that threaten the country’s economic future.
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