France promises ‘structural reforms’ after Fitch downgrade
France will pursue structural reforms as it strives to reform its economy, Finance Minister Bruno Le Maire told French news agency AFP, after credit agency Fitch downgraded the country’s debt.
Late on Friday, Fitch announced that it had rated France’s foreign currency issuer (IDR) default rating at “AA-“, down from “AA”.
Newspapers focused mainly on the agency’s mention of protests against pension reform, while the finance minister argued that Fitch’s decision was not a fair reflection of the facts.
What did Le Maire say?
Speaking to AFP, Le Maire promised to continue “approving structural reforms for the country”.
“I believe the facts invalidate Fitch’s assessment,” the minister said, while in Stockholm for a meeting of EU finance ministers. “We are capable of implementing structural reforms and will continue to implement structural reforms for the country.”
“Do not doubt our total determination to restore the country’s public finances… to accelerate the reduction of the country’s debt, to reduce deficits and accelerate the reduction of public spending,” he said.
While Le Maire seemed to be trying to argue that his government pursuing pension reform amidst massive protests demonstrated that resolve, Fitch argued that the “social and political pressures illustrated by the protests against pension reform will complicate fiscal consolidation” in France going forward.
President Macron’s government pushed through the reforms without a vote in the lower house of parliament, sparking months of massive strikes and protests. This was necessary because Macron’s bloc lost its majority in the National Assembly during the legislative elections following Macron’s re-election as president. Macron signed the bill this month.
He had promised to carry out a similar overhaul in his first term, but delayed for years amid resistance and ended up canceling the plan when the COVID pandemic hit.
Even after the increase from 62 to 64, the retirement age in France will be among the lowest in the developed world. Most of Western Europe is at 65 or higher, and many countries like Germany plan to raise it even higher in the coming years.
What does downgrade mean?
The credit downgrade means Fitch sees France as a riskier venture for investors than previously.
That could lead France to pay higher interest rates on the money it borrows, potentially making fixing its debt even more difficult in the future.
France’s previous AA rating was already bad by the standards of a G7 economy.
Now, being placed at AA- (the lowest end of the AA ratings that Fitch still describes as “very high credit quality”) means it is seen to be as reliable as the UK – fresh out of the aftermath of Brexit and still recovering from Liz Truss’ economically disastrous and fleeting tenure as prime minister – and only more credible than famously indebted G7 members Japan and Italy.
What else did Fitch say?
In its statement announcing the downgrade, Fitch cited weak fiscal metrics, spending rigidity, high government debt and higher interest expenses as the main drivers of the rating.
Among average drivers, the agency highlighted the social and political pressures that, according to it, were reflected in the protests against President Emmanuel Macron’s pension reform bill. He said they would “complicate fiscal consolidation”.
The agency also warned that bypassing the parliamentary vote to pass the bill could “likely further strengthen radical and anti-establishment forces”.
“Political stalemate and [sometimes violent] Social movements pose a risk to Macron’s reform agenda and could create pressure for more expansionary fiscal policy or a reversal of past reforms,” the agency predicted.
Source: DW
Lori Barajas is an accomplished journalist, known for her insightful and thought-provoking writing on economy. She currently works as a writer at 247 news reel. With a passion for understanding the economy, Lori’s writing delves deep into the financial issues that matter most, providing readers with a unique perspective on current events.