France’s budget proposal is a meaningful attempt to tame the deficit that risks adverse consequences if it doesn’t pass, according to a senior Fitch Ratings analyst.
In an interview this week, Federico Barriga-Salazar described Finance Minister Roland Lescure’s push to pare the shortfall to 5% of output next year as “substantial.”
“The whole challenges of the fiscal story are still there, but it’s significant enough that it would create a bit of a short circuit if it didn’t happen,” said Barriga-Salazar, who is Fitch’s head of western Europe sovereigns. “It is big, it is important. The question mark is whether it gets approved in its current state.”
Lescure’s budget unveiled earlier this month envisages €43 billion ($48.2 billion) in measures to bring down the deficit and appease financial-market worries about the country’s public finances.
The extra yield demanded by investors to hold French 10-year bonds compared with those of Germany recently hit its highest since 2011. Despite that comparison, Barriga-Salazar offered a sanguine view about the current juncture.
“Where we are today, it’s a fiscal problem,” he said Wednesday. “It’s not a financing problem.”
The Fitch analyst predicted that in the event of an extended impasse over the budget, the government is ultimately ready to break precedent and bypass parliament to push it through by ordinance.
“I think they’ve prepared the ground for this,” he said. “They cannot function very well without a budget, so I think this looks like a very likely outcome.”
He spoke days after far-right presidential candidate Marine Le Pen unveiled plans to cut the deficit sharply if she wins office, proposing a shortfall as low as 3.7% of gross domestic product in 2027, reaching 2.2% five years later.
Barriga-Salazar observed that such an outline simply matches France’s formal commitments to the the European Union, while saying that the proposals don’t explain how much about actual delivery.
“There’s not enough detail to show that this can be achieved within the next two to three years,” he said. “There would need to be much more ironed out.”
Fitch downgraded France last year to A+, a level that rivals Scope and S&P have since matched. Moody’s still has a higher credit score on the country, but is scheduled to offer a possible update later this month.
Given the six-month lag between reviews, the next one at Fitch is likely to take place in early 2027, when the presidential election will be approaching. A trickier outlook will probably have crystallized by then.
“It’s already clear that the fiscal situation in France will be much more difficult,” said Barriga-Salazar.