S&P Global Ratings has downgraded France’s sovereign credit rating from AA- to A+, citing significant fiscal uncertainties despite the submission of the 2026 budget to parliament.
Over the span of just over a month, France has lost its AA rating from two of the three major rating agencies, which may compel certain investment funds to sell off French government bonds. This is because S&P’s current rating for France now aligns with that of Spain and Portugal, and is only six notches above junk status.
Meanwhile, Moody’s is scheduled to review France’s credit rating on Friday. Should Moody’s also decide to downgrade France’s rating, it could trigger further sell-offs of French government bonds, adding more uncertainty to France’s debt situation and putting additional pressure on the euro.
In fact, in response to the Covid-19 pandemic, countries worldwide implemented various economic stimulus measures. To mitigate the economic and social impacts of lockdowns, many nations significantly increased welfare spending between 2020 and 2022.
To accommodate rapidly rising government expenditures, numerous countries have substantially increased their sovereign debt issuance in recent years, resulting in a sharp rise in debt-to-GDP ratios globally.
Therefore, France is not alone in facing fiscal pressures. Major economies such as the United States, China, Germany, the United Kingdom and Japan are all experiencing challenging fiscal conditions. Addressing fiscal issues has become a top priority for governments worldwide.
For example, the United States is seeking to resolve its fiscal challenges through substantial spending cuts and increased revenues via tariff policies.
However, regardless of the strategies adopted by different countries, these measures are likely to intensify international tensions and provoke stronger public resistance, thereby increasing political uncertainty. Coupled with the rising risk of sovereign bond sell-offs, these factors represent significant potential risks to global financial markets that should not be overlooked.
Andrew Wong is a veteran independent commentator
