France has been thrust into the financial spotlight after Fitch Ratings, one of the world’s leading credit rating agencies, downgraded the nation’s sovereign credit rating from AA- to A+ on September 12, 2025. The move marks France’s lowest rating on record from a major agency and lands the eurozone’s second-largest economy on the same footing as Belgium, while placing it a notch below the United Kingdom, according to Bloomberg and Reuters.
The downgrade comes at a particularly turbulent moment for the French government. Less than a week before the announcement, President Emmanuel Macron’s administration suffered a dramatic collapse following the defeat of then-Prime Minister François Bayrou in a parliamentary confidence vote. The vote centered on Bayrou’s ambitious attempt to push through a 44 billion euro ($52 billion) austerity budget aimed at reining in France’s ballooning deficit and debt. His resignation on September 8 left a political vacuum that Macron swiftly moved to fill by appointing Sébastien Lecornu, a conservative loyalist and the former defense minister, as the country’s fifth prime minister in just under two years, Reuters reported.
Fitch’s rationale for the downgrade was clear and direct: “The government’s defeat in a confidence vote illustrates the increased fragmentation and polarization of domestic politics,” the agency said in its official statement, as cited by The New York Times. “This instability weakens the political system’s capacity to deliver substantial fiscal consolidation.” The agency further warned that France’s “debt mountain would keep rising until 2027 unless urgent action was taken.”
France’s fiscal challenges are daunting. The budget deficit reached 168.6 billion euros ($198 billion) in 2024, amounting to 5.8% of the country’s gross domestic product (GDP)—the largest shortfall since World War II and nearly double the 3% limit set by eurozone rules. Government spending in 2024 totaled 1.67 trillion euros, outstripping revenues of 1.5 trillion euros, with much of the outlay directed toward France’s expansive social safety net. To plug the gap, France’s national debt has soared to 3.35 trillion euros, representing 116% of GDP, among the heaviest burdens in the eurozone, according to The New York Times.
The cost of servicing this debt is escalating rapidly. Interest payments are projected to hit 66 billion euros in 2025, up from 26 billion euros in 2020—an amount now larger than France’s entire education or military budget. Borrowing costs have surged, with the yield on 10-year government bonds rising to 3.47%, nearly matching Italy’s rate, which is notable given Italy’s reputation for fiscal woes. Agence France-Presse and Reuters noted that France’s borrowing costs have even overtaken those of Greece and are well above Germany’s, the EU’s economic powerhouse.
Fitch’s downgrade has not gone unnoticed by policymakers and investors. Finance Minister Eric Lombard acknowledged the move, stating that Lecornu is “pushing ahead with consultations with lawmakers to get a budget adopted and restore the public finances.” But the road ahead is anything but smooth. Lecornu faces the Herculean task of drafting a 2026 budget that must both satisfy international markets and pass through an exceptionally fractured parliament. He has until October 7 to present his draft, though a delay to October 13 is possible, according to Reuters.
To win enough parliamentary support, Lecornu is expected to court the Socialists by proposing higher taxes on the wealthy and softening Macron’s contentious 2023 retirement reform. But these moves risk alienating members of Macron’s own party and the conservative Republicans, further complicating the already delicate balancing act. The outgoing prime minister, François Bayrou, expressed his frustration on social media, lamenting that France is “a country whose ‘elites’ lead it to reject the truth (and) is condemned to pay the price.”
Fitch’s downgrade is particularly consequential because it could trigger a domino effect. If other major agencies such as S&P Global Ratings and Moody’s follow suit, investors bound by ratings thresholds may be forced to sell French bonds, potentially driving up borrowing costs even further. This possibility has injected a new level of anxiety into the bond markets, which had already priced in some risk but now face the prospect of additional volatility, as noted by Reuters and AFP.
The political backdrop is just as fraught. Macron’s decision in June to dissolve the National Assembly in a bid to stave off the far-right National Rally party backfired, leading to a deeply divided parliament. Two prime ministers have since been ousted over failed attempts at deficit reduction. Now, Lecornu must navigate a landscape where no party holds a clear majority and where left, right, and center factions are locked in bitter disputes. Fitch warned that “there is a high likelihood that the political deadlock continues beyond the election,” referencing the next presidential contest in 2027.
France’s fiscal outlook remains clouded by uncertainty. Fitch projects that, without significant policy changes, debt will climb to 121% of GDP by 2027. The agency was blunt: “France’s rising public indebtedness constrains the capacity to respond to new shocks without further deterioration of public finances.” Despite these challenges, the French national statistics bureau, INSEE, offered a sliver of optimism, projecting modest GDP growth of 0.8% for 2025—slightly higher than earlier estimates.
For now, the downgrade is unlikely to put immediate pressure on France’s largest banks, such as BNP Paribas and Credit Agricole, which are already rated A+ by Fitch. Societe Generale sits a notch lower, but analysts believe the banking sector is insulated from the sovereign downgrade, at least in the short term.
All eyes are now on Prime Minister Lecornu as he attempts to steer France through this storm. The clock is ticking for his government to present a credible plan to rein in the deficit, satisfy a skeptical parliament, and reassure international investors. The coming weeks will be crucial in determining whether France can regain its financial footing—or whether further downgrades and political upheaval are yet to come.
France’s struggle to contain its debt and restore political stability is now playing out on the world stage, with every move watched closely by markets, policymakers, and its European neighbors. The country’s next steps could shape not just its own future, but the fiscal health of the entire eurozone.
