Equipping France with a “responsible” budget for 2027, this is the goal set out by the French government as bad economic news piles up.
The ratings agency Fitch has maintained France’s sovereign debt rating at A+, but has downgraded its outlook from “stable” to “negative”, citing weaker growth, higher borrowing costs and a larger deficit than at the time of its previous assessment in August.
This verdict comes after figures published by Insee on Friday morning, according to which French gross domestic product fell by 0.1% in the third quarter, after stagnating in the second quarter and shrinking by 0.2% in the first.
To justify its decision (source in French), Fitch highlighted in particular “the persistence of political fragmentation” and “a difficult social climate”, with the mass demonstrations shaking the country, which “further complicate the implementation of a sustainable fiscal consolidation”.
France’s rating nevertheless remains supported by “the size, wealth and diversification of its economy, the strength of its institutions, its membership of the euro area and the resilience of its banking sector”.
“The absolute need to adopt a budget”
In a statement sent to the media on Friday evening, the Minister for the Economy and Finance, Roland Lescure, said he “took note” of the decision by the US agency to lower France’s outlook.
“This assessment confirms the absolute need to adopt by the end of the year a responsible budget, which aims to restore the public finances by reducing our deficit to 5%”, he went on, adding that the government was “determined to remain on a path of fiscal consolidation”.
“In an uncertain international context, it is imperative to give economic players visibility”, concluded the head of Bercy.
Earlier in the day, reacting to the fall in GDP on the Franceinfo set, Roland Lescure had described a French economy “at a standstill”. He also warned that the country would “hit the wall” if the “recovery” budget was not adopted.
“I say it and I repeat it and I will keep on repeating it to the end, we need a budget, we need a budget deficit of 5% or less”, he insisted.
But the adoption of the text by a vote in parliament looks more than uncertain, given the lack of a majority in the National Assembly and the approaching presidential election.
49.3, ordinances: Fitch expects a show of force
The political debates taking shape six months before the vote “have not significantly strengthened Fitch’s confidence in the possibility of a lasting deficit reduction that would be likely to stabilise the debt”, the agency notes.
“We consider that the budget should be adopted, thanks to the constitutional mechanisms available to the government despite the absence of a parliamentary majority”, say Fitch’s analysts.
In the event of a deadlock in parliament, Roland Lescure has indicated that the government does not rule out using article 49.3 of the Constitution, which allows a text to be adopted without a vote, unless a motion of no confidence is passed. Another possibility is to use ordinances, a procedure that has never been used to pass a budget since the establishment of the Fifth Republic in 1958.
Asked by Euronews, Jérôme Mathis, professor of economics at Paris-Dauphine University, believes that a budget adopted by ordinance could reduce uncertainty in the short term, but would not in itself restore long-term fiscal credibility.
“Markets generally prefer a contested decision to a prolonged absence of decision. But if a budget adopted by ordinance is seen as fragile, liable to be called into question after the presidential election or as revealing a lasting inability of the political system to build majorities, the positive effect on [investors’] confidence could be limited”, the researcher explains.