France Hit by Triple Credit Downgrade, Default Risk Looms Amid Fiscal Paralysis

Credit Agencies Flag Persistent Fiscal Strains
General Government Debt to Reach 116.5% This Year
Policy Dilemma Between Fiscal Austerity and Growth Stimulus

Standard & Poor’s (S&P), one of the world’s three major credit rating agencies, has downgraded France’s sovereign credit rating from AA– to A+, the fifth-highest investment grade. The move follows similar downgrades by Fitch Ratings and DBRS Morningstar last month, marking the third rating cut for France in just one month. The successive downgrades underscore France’s reemergence as the “weak link” in Europe’s fiscal architecture.

S&P Follows Fitch in Downgrading France’s Credit Rating

According to Bloomberg and other sources on October 20 (local time), S&P Global Ratings lowered France’s rating on October 17, citing the government’s inability to meaningfully reduce its fiscal deficit next year. The agency pointed to the suspension of President Emmanuel Macron’s flagship pension reform as evidence of heightened uncertainty. Prime Minister Sébastien Lecornu—who resigned unexpectedly amid political turmoil before being reappointed—opted to postpone pension reform until after the presidential election in an attempt to avert a government collapse.

S&P had originally planned to release its updated rating on November 28 but advanced the announcement by more than a month. The agency, which had maintained a “negative” outlook on France’s rating, cited the pension reform suspension as a key trigger for the early downgrade.

Explaining the accelerated timetable, S&P said that “a series of no-confidence votes in the National Assembly has delayed France’s fiscal consolidation.” While it expects the government to meet its 2025 fiscal deficit target of 5.4% of GDP, S&P warned that “without significant additional deficit-reduction measures, the pace of fiscal consolidation will be slower than previously projected.” The agency also cautioned that “policy uncertainty is likely to weigh on investment and private consumption, hindering growth and straining the French economy.”

As a result, France now faces a wave of downgrades within a single month. Before S&P, Fitch had also cut France’s rating from AA– to A+. This level is notably lower than those of Germany and the Netherlands (both AAA), Finland and Austria (AA), and even South Korea (AA–). Around the same time, DBRS Morningstar—considered a top-four global rating agency—downgraded France from AA (high) to AA. Moody’s, another of the “Big Three,” is set to release its assessment on October 24, with analysts expecting a similar downgrade.

Public Debt Nearing Greek Levels

France’s national debt burden has reached alarming proportions. According to the International Monetary Fund’s Fiscal Monitor released on October 15, the ratio of France’s general government debt—covering central and local governments as well as public non-profit entities—to GDP is projected to reach 116.5% this year. By 2030, it is forecast to climb to 129.4%, approaching Greece’s 130.2%.

France’s public debt has been on a relentless upward trajectory for three decades. In 1995, it amounted to only 55.8% of GDP, remaining relatively stable through the early 2000s. However, the 2008 global financial crisis marked a turning point: emergency stimulus spending drove the ratio up to 66.8%. Subsequent years of weak growth and Europe’s sovereign debt crisis kept the debt rising steadily, surpassing 90% by the mid-2010s.

The true inflection point came in 2020 with the COVID-19 pandemic. Massive fiscal outlays for lockdowns, healthcare expansion, job retention subsidies, and corporate aid catapulted the debt ratio from 98% to 114.8% in a single year—an unprecedented surge in modern French fiscal history. Despite modest austerity efforts, the ratio remained at 109.7% in 2023 and climbed again to 114.1% in early 2025, far above the eurozone average of 88%.

Triple Burden of Pandemic, Welfare Spending, and Ukraine Support

France’s debt escalation reflects both cyclical shocks and structural weaknesses. While the pandemic delivered the immediate blow, the country had long suffered from chronic fiscal imbalances rooted in excessive welfare spending, rigid budget structures, and sluggish revenue growth. The surge in energy prices following the 2021–2022 war in Ukraine further strained the budget. In an attempt to shield households and businesses from energy inflation, the French government deployed multibillion-dollar subsidies—measures that cushioned the downturn but severely weakened fiscal discipline.

Adding to the pressure, the European Central Bank’s aggressive rate hikes have dramatically increased debt-servicing costs. During the low-rate era, rising debt posed little fiscal threat, but with interest rates now elevated, borrowing costs are ballooning. France’s interest payments on government bonds are projected to reach $57 billion in 2025, up more than 20% from just a few years ago. Such surging costs threaten to crowd out spending on essential sectors like education, healthcare, and social welfare—raising the risk of political and social unrest.

The French government now faces a critical policy dilemma: restoring fiscal discipline without stifling growth. Austerity would risk deepening the slowdown, while continued stimulus could push debt into an unsustainable spiral. Prolonged fiscal slippage and mounting interest burdens could ultimately undermine confidence among investors and EU policymakers alike. Should Paris fail to strike a balance between economic recovery and fiscal prudence, analysts warn that a sovereign default may no longer be a distant risk.