“Fitch Downgrades France’s Credit Rating to Negative Outlook”

Muhammad Jamal wrote

Saturday, April 29, 2023 07:45 PM

The main activity of the agency Fitchin assessing the ability of countries to pay their debts, by giving them a score represented by letters, similar to the two other major rating agencies Moody’s and Standard & Poor’s, and it is not expected that the “Fitch” rating agency’s downgrade of France’s degree will have only a few immediate repercussions on Paris, according to Sky. News.

AAA is the best, i.e. maximum credit quality, and C or D is the worst, indicating the agency’s probability of default..

The agency justified its decision in particular by referring to a “large budget deficit and little progress” in reducing it, after three years of large public spending aimed at curbing the Covid-19 and inflation crises..

Fitch Ratings, in granting French debt, considered the “AA” grade to be of “very good quality” and remains generally desirable and safe for investors, but downgraded it to the last grade before the “A” level, which equals credit with “good quality”.“.

Although Fitch’s downgrading of France’s credit rating is of course not good for it, it remains less effective than losing the “AAA” degree at the beginning of the second decade of the current century, as Moody’s and Standard & Poor’s deprived Paris of this degree in 2012. Fitch in 2013.

Anne-Laure Kechel, founder of the Global Sovereign Advisory company that specializes in state debt, told AFP in early March that the move “was a leap into the unknown.”“.

“At the same time, we tell ourselves that some investors could participate less” in buying French debt in the markets, she added.

Currently, Standard & Poor’s gives France an “AA” rating with a negative outlook, while Moody’s has assigned it an “AA2” rating, with a stable outlook..

Thus, the two agencies have granted Paris the third best possible rating, provided that “Standard & Poor’s” will update its assessment on June 2..

The downgrade of France’s credit rating did not completely surprise investors, with Fitch rating agency attaching France’s “AA” rating to a “negative outlook”, paving the way for a downgrade..

On Saturday, French Finance Minister Bruno Le Maire reassured, reiterating to AFP the government’s desire to “pass structural reforms for the country.”“.

In its assessment, Fitch considered that the severe social tension over pension reform “poses a threat to French President Emmanuel Macron’s reform programme.”“.

On the debt issue, Le Maire added, “Do not doubt our full determination to restore stability to the country’s general budget and accelerate debt reduction, reduce the deficit and accelerate the reduction of public spending.”“.

Anne-Laure Kechel confirmed that France “did not lose investors” with its debt when it lost its “AAA” credit rating in 2012-2013. In fact, the agencies have downgraded many other European countries, which has reduced the seriousness of the situation in the eyes of the markets.

“On the other hand, we know there is a riskier assessment: if we move to ‘A’, it is possible that some investors will back away” from buying French debt, Kechel cautioned..

Compared to major European countries, France ranks low against Germany, which has an “AAA” rating according to the three main agencies, but Berlin is an exception..

Moody’s threatens to downgrade Italy by one notch to classify its debt as highly junk..

Spain is also rated low compared to France, unlike the Netherlands, which still enjoys the best possible rating from Moody’s, Fitch and Standard & Poor’s..

Regardless of their classification, all European countries face the same challenge since 2022, which is high interest rates, which increases the cost of sovereign debt..