Political Uncertainty and Budget Reality Put France in a Financial Vise
France has become one of the most financially troubled countries in Europe, with an outsize debt and deficit that are likely to keep ballooning despite efforts by a fragile new government to address the problem, the Fitch Ratings agency said on Friday.A day after France’s new prime minister, Michel Barnier, introduced a tough austerity budget aimed at mending the nation’s rapidly deteriorating finances, Fitch issued a negative outlook for France’s sovereign credit rating.The rating was left unchanged at an AA– level for now, but Fitch warned that it could be revised lower if the government’s budget plans fall apart.The outlook reflects greater financial risks that have swirled in France since President Emmanuel Macron dissolved the lower house of Parliament in June and took until last month to appoint a new government.
The episode left Parliament deeply divided, split nearly evenly between warring political factions on the left, right and center, and leaving Mr.Barnier with no clear majority.
That will make it harder to pass a belt-tightening budget and assuage nervous international investors at a time when France’s national debt has ballooned to more than 3 trillion euros ($3.28 trillion).In a statement late Friday after Fitch’s announcement, France’s economy minister, Antoine Armand, said the government was determined “to turn around the trajectory of public finances and control debt.”France is the second-largest economy among the 20 countries that use the euro currency, and as such, is considered too big to fail.European Union rules require members to have sound finances, including capping debt at 60 percent of economic output and not letting government spending exceed revenues by more than 3 percent.But France is now well in excess of both of those limits, drawing a formal rebuke recently from the European Union.
France’s debt has spiraled to more than 110 percent of economic output, the worst in the bloc after Greece and Italy.Fitch wa...