France again is standing at the crossroads of stormy winds, balancing between waves of economic instability and fragile bridges of political unity. Prime Minister Michel Barnier, who is struggling to keep the government afloat, received a temporary reprieve after Standard & Poor’s rating agency affirmed the country’s AA- rating. This decision was a breath of fresh air for the country of wines and cheeses, but the situation remains on the edge.
On the S&P scale, the AA- rating belongs to one of the highest categories, slightly inferior to the AA+ and AA ratings, which reflect minor differences in financial stability. To maintain this level, the country must maintain economic stability and financial policy transparency. For comparison: in December 2024, according to the S&P agency, the Czech Republic and China also have a similar credit rating at the AA- level.
How France turned from an economic “excellent” into a “good” one
Just as it is humiliating for an excellent student to become just a good student, while for a top three it would be the height of happiness, for France – the second economy in Europe – it was a shame to go down in the last years in the credit rating of Standard & Poor’s by 4 notches. So, in January 2012, France lost its highest possible AAA rating, dropping one notch to AA+. This decision was a consequence of economic instability and a growing debt burden. In November 2013, S&P again downgraded France from AA+ to just AA.
In December 2014, France lost another position when the rating was finally downgraded to AA-. Finally, in May this year, France’s rating was downgraded to AA-, indicating long-term economic problems, primarily high public debt and slow growth. This decline reflects deep structural problems of the economy.
S&P noted that, despite political instability, France is still “afloat” thanks to labor market reforms introduced by President Macron, citizens’ savings, strong exports and the benefits of EU membership.
How political fragmentation and economic challenges are testing France’s strength
The agency highlighted the complexities caused by political fragmentation, which complicates budget management. The crisis intensified after France’s credit rating was downgraded in May. In response, Macron called early elections, which only worsened the situation, with the National Assembly split between left-wing, pro-presidential centrists and Le Pen’s strengthened National Union. Such separation makes it impossible to quickly make important decisions, in particular budgetary ones.
Bond markets are also putting pressure on France. The gap between the yields of French and German 10-year bonds has reached a critical level, which indicates the increase in risks for investors. To avoid collapse, Barnier is forced to make concessions that undermine long-term fiscal consolidation aimed at achieving sustainable levels of public debt and budget deficits in the long term. His concessions prompted new demands from Le Pen, who issued an ultimatum: either her conditions will be taken into account in the near future, or the government will lose support.
Experts’ forecasts regarding state finances look pessimistic. Tax revenues are lower than expected, and the budget deficit exceeds 6% of GDP, instead of the planned 4.4%. This complicates the government’s plans to cut spending by 60 billion euros and return the deficit to 5% next year. Barnier is currently trying to push through budget reforms but faces threats of a no-confidence vote, particularly from Le Pen’s allies.
Finance Minister Arman warned that the lack of a budget and political instability could lead to a sudden increase in the cost of financing the national debt. He stressed that while basic services will remain available, the lack of clarity could harm household confidence, business investment and overall economic growth.
France is on the brink. Political fragmentation and economic challenges are testing its strength, and if solutions are not found soon, the consequences will be felt not only by the country, but also by the entire Eurozone.
France’s dramatic struggle for the budget: lessons for Europe and Ukraine
It is difficult to overestimate the role of credit ratings in the modern economy. The recent confirmation of France’s rating by the S&P agency was a respite for the country, but at the same time a signal for action. The high dependence of economic policy on external assessments demonstrates the vulnerability of the current situation.
According to forecasts, if France does not untie the Gordian knot of the budget deficit, the rating may be lowered, which will complicate access to financing and threaten economic stagnation. A downgrade of the credit rating of Europe’s second largest economy may make it difficult for it to access financing due to the increase in the cost of borrowing on international markets. In simple words, the state will be forced to pay higher interest on its bonds (France, like most countries, finances its budget deficit by issuing bonds that are bought by banks, pension funds and international institutions). This will increase debt servicing costs and reduce the confidence of institutional investors. Next, a chain reaction should be expected: the government will face difficulties in financing budget programs, rising rates will affect business, limiting investment and slowing economic development, which may lead to stagnation.
Economic pressure is becoming more and more felt. The budget deficit of 6.2% of GDP exceeds the planned indicators. For comparison: for 2024 Germany’s budget deficit – the first economy of the Eurozone – is approximately 1.75% of GDP. In general, in the Eurozone this year budget deficit projected at 3.0% of GDP with a gradual decline to 2.8% in 2026.
Tax revenues are falling and spending is rising. Barnier’s government is trying to reduce the deficit, but the process faces political resistance. Meanwhile, radical forces, represented by Le Pen supporters, are becoming more influential and risk further political upheaval.
The protracted economic storm in France mirrors what is happening in other European countries. Governments face fragmentation – the growth of populist and radical movements, which make it difficult to form stable coalitions. Changes in policies and structures are taking place in the EU due to economic crises, inflation and geopolitical problems.
Ukraine, for its part, faces similar problems, albeit in a different geopolitical context. The protracted war created unprecedented pressure on the economy and political system. Domestic political risks, parliamentary fragmentation and power struggles echo France’s challenges, but they are compounded by security threats.
What unites France, Ukraine and Europe in general is the growth of social tension. Inequality, economic hardship and feelings of insecurity catalyze public protests that further destabilize governments. In these conditions, not only economic wisdom is required from governments, but also political will.
Economic thermometer: how the credit rating of Ukraine changed
In recent years, the rating of Ukraine has been greatly “stormed” due to economic reforms, political events and military conflicts. These changes resemble the oscillations of an electrocardiogram: sometimes rapid ups and downs, which indicate a shock, then smoother lines, which symbolize short periods of stability and recovery.
From 2010 to 2013, Ukraine was recovering from the global financial crisis. Its economy stabilized, and international rating agencies improved assessments of the country’s financial capacity. In 2010, S&P raised Ukraine’s rating to B- for currency liabilities and B for hryvnia liabilities.
However, in 2014, due to the change of government, the annexation of Crimea and the beginning of the war in the East, the situation worsened sharply. The ratings began to fall: in 2014, S&P downgraded them to CCC, and in 2015 to SD (this is the so-called selective default – Ukraine has the same critical rating today) due to the economic crisis and the risk of insolvency.
Another recovery began in 2016 thanks to reforms and cooperation with international financial organizations. By 2021, the situation improved, and Ukraine’s ratings began to rise.
But in 2022, Russian aggression dealt a devastating blow to the domestic economy. It is quite natural that the country’s ratings fell sharply: in August 2022, Fitch rated Ukraine as RD (limited default), although after debt restructuring, the rating was raised to CC.
Currently, Ukraine’s credit rating according to the S&P agency is SD (selective default). It decrease took place in August after Ukraine missed paying the coupon income on the 2026 Eurobonds.
The SD rating means that the country has defaulted on certain debt instruments, but continues to service others. In this case, the missed payment was due to the government’s decision to suspend payments on external debt obligations until the debt restructuring process was completed.
It is worth noting that once the debt restructuring is completed, S&P may view the rating of Ukraine. Usually, after the successful completion of such processes, the ratings are upgraded to CCC or B levels, depending on the new debt conditions and the overall financial situation of the country…
…France, like many other countries, is at a crossroads, facing challenges that test its ability to withstand the waves of global economic change. If lessons are not learned from this crisis, the consequences could be a real earthquake for the whole of Europe. Ukraine should take this signal as a warning to avoid similar upheavals and focus on strengthening its own stability before it is too late.
Tetyana Viktorova
