French Finance Minister Bruno Le Maire announced his determination to seek billions of dollars in new government spending cuts on Saturday, June 1, after ratings agency Standard & Poor's downgraded France's credit rating. The agency justified its decision to cut France's long-term sovereign rating from “AA” to “AA-” due to concerns over weaker-than-expected growth. S&P is one of many ratings agencies and economists to cast doubt on the government's commitment to reduce the budget deficit to below 3% of gross domestic product by 2027.
After Friday's announcement, Le Maire launched a media campaign to defend the government's spending record. “We will continue on exactly the same path, neither accelerating nor slowing down,” he vowed in a YouTube video posted on Saturday. In interviews with French media, Le Maire ruled out raising taxes, but said no decision had been made to decouple pensions and other social benefits from the inflation rate.
The minister made cutting France's annual government spending of more than 450 billion euros ($488 billion) a priority. He highlighted 10 billion euros of spending cuts decided earlier this year and said he was determined to find another 10 billion euros in savings in 2024. The government does not have a majority in parliament, and Le Maire said S&P's decision had made French lawmakers “aware” of the need for savings.
S&P warned that “political divisions” will make it difficult for the government to implement reforms to balance the budget, and projected the deficit to exceed the target of 3% of GDP in 2027. But a rise in France's budget deficit to 5.5% of GDP in 2023 instead of the expected 4.9% raised alarm bells for many rating agencies. France's general government debt will rise to about 112% by 2027 from about 109% in 2023, “contrary to previous expectations,” S&P said.
Lemaire said: The Parisian The main factor behind the downgrade was government spending during the coronavirus pandemic, the paper said.
A downgrade in credit ratings could reduce investor interest and make it harder to repay debt.
Moody's and Fitch refrained from downgrading France's ratings earlier this year, while S&P maintained its “stable” outlook for France on “expectations that real economic growth will accelerate, helping the government to consolidate its finances,” although this is not enough to reduce France's high debt ratio.
