It was five weeks ago. On April 28, the rating agency Fitch lowered France’s rating from AA to AA – citing in particular the strong social tensions at work around the pension reform. On the financial markets, however, French borrowing rates have – almost – not changed.
What will happen on Friday, June 2, if Standard and Poor’s decides in turn to downgrade the rating of “the borrower France”? Does the opinion of the rating agencies, responsible for assessing a debtor’s ability to repay his debts, have as much weight today as at the time of the crash of 2007-2008, then of the crisis of the Greek and European debt from 2009?
For Norbert Gaillard, a specialist in rating agencies (1), “Fitch’s announcement did not arouse any particular reaction because the rates at which France borrows today already reflect its situation and in particular its chronic difficulty in reducing its budget deficit after a crisis, unlike its neighbours. »
This French specificity translates into a growing public debt at more than 110% of GDP today, compared to 95% before the Covid, and 65% before the 2008 crisis. “France is one of the countries rated “AA” but, within this “club” of good students, she is one of the most indebted”, emphasizes Alexandre Baradez, of IG France.
In fact, interest rate differentials are beginning to reappear. When Paris borrows at about 3% over ten years, Berlin gets away with 2.4%. “Nevertheless, French interest rates are not that high”, nuance Alexandre Baradez.
In reality, “the agencies are generally conciliatory with our country”, notes Norbert Gaillard. Not without reason, says Alexandre Baradez: “We are a large diversified economy capable of withstanding shocks. It is beginning to reindustrialize and still attracts foreign investment. Demographics remain dynamic, unemployment has started a steady decline and State financing is based on a solid ability to levy taxes. In addition, we must not forget the driving role of the Franco-German tandem in Europe, which establishes France politically. »
It is for these same reasons, already, that the market had hardly reacted to the loss by France of its triple A, at the beginning of 2012, a note nevertheless described by Nicolas Sarkozy, then head of state, as ” national treasure”.
In this context, “one might think that the rating agencies have become superfluous, points out Norbert Gaillard. But based on several criteria, linked to economic and political fundamentals, their ratings are more stable than market mood swings. »
For Philippe Waechter, of Ostrum Asset Management, “we haven’t talked about these agencies for a long time but the tide is turning”. In other words, the years 2010-2021 are well and truly behind us. No more generous central banks flooding the markets with liquidity in the face of the specter of deflation first, and then the effects of the pandemic. The return of inflation at the end of 2021 and the aftermath of the war in Ukraine at the beginning of 2022 signaled the end of free money, and the tightening of the purse strings by central bankers.
Like a falling tide, this ebb brings to light the differences between countries. “And it’s going fast”, warns Norbert Gaillard, recalling that “our ten-year rate has gone from 0% at the end of 2021 to around 3% today! This is why France can no longer afford abysmal public deficits”… scrutinized by investors and rating agencies alike.
It is to avoid a deterioration that Paris is holding close discussions with Standard and Poor’s and increasing public interventions: “Commitment to reduce our debt” for Élisabeth Borne at Matignon; announcement of an “additional freeze on 2023 budget appropriations” for Bruno Le Maire in Bercy, who says he is “intractable” on reducing the deficit, after the pension reform…
What if Standard and Poor’s downgraded the tricolor rating on Friday? “France’s ‘signature’ remains good and its fundamentals solid,” maintains Alexandre Baradez. Norbert Gaillard says he is more pessimistic “if Standard and Poor’s lowered our rating, with an additional negative outlook”, that is to say the announcement of a new revision within three months – the equivalent of a surveillance.
“At this stage, investors do not seem to be asking the question of our debt, notes Philippe Waechter. But if each agency were to downgrade our country’s rating for a short period of time, it could become embarrassing because these “individual” decisions would end up adding up. And by weighing on the national reputation.
Each agency has its own rating system. Schematically, the grades are established from A to D, with intermediate levels. The notes can thus be accompanied by a “+” or a “–” or even a “1” or a “2”. In general, the higher the rating, the lower the risk of non-repayment.
The AAA ratings correspond to a very good solvency (the ratings AA and A come next).
The BBB ratings (the BB and B ratings follow) define average creditworthiness.
Les CCC (then CC and C) indicate a very high risk of non-repayment. Finally, the D rating reflects a situation of bankruptcy of the borrower.
Source: Ministry of Economy and Finance.