"The downgrade should only be one notch": Christian de Boissieu, professor of economics

With the Fitch Ratings agency set to release France's financial rating this Friday, September 12, Christian de Boissieu, an economist and professor emeritus of economics at the University of Paris 1 Panthéon-Sorbonne, believes that a one-notch downgrade, the most likely outcome in his view, would be bad news, but would not trigger a financial earthquake. Here's a closer look.

How is France positioned?

There are three major rating agencies (after Fitch, Moody's is expected on October 24, and Standard & Poor's on November 28, Editor's note). The latest rating given by Fitch to France is AA-, which corresponds, to put it simply, to a 17/20 while Germany, for example, with AAA, obtained 20/20. We know that the agencies take into account political instability, the state of public finances, the capacity to repay the debt or even social risk, without knowing how each of these criteria is weighted. It should also be added that Fitch had given a negative outlook in the spring, so we must expect a downgrade. But I think it will only be one notch, which would bring us to A +, the equivalent of a 16/20.

Why not two notches?

I would be surprised because a new Prime Minister has just been appointed, and we need to give the new team time to settle in. However, if the Socialist Party agrees to enter a future government with a no-confidence contract, this could lead to political stability for a few months, but it means that in exchange, the Socialist Party will demand concessions on the budgetary and fiscal fronts. And the target of a deficit of 4.6% of GDP planned in the stillborn Bayrou budget will not be achieved. However, I think it is better to sacrifice this to get out of political instability, otherwise the rating agencies could penalize us.

Will interest rates soar?

I think that investors in the markets have already factored in the downgrade, so it's not a surprise that could trigger an instant upward reaction. Moreover, 10-year rates have fallen slightly in France in recent days (on September 4, the Agence France Trésor borrowed a ten-year bond at a rate of 3.57%, Editor's note), and Spain, for example, which is rated slightly lower (A), borrows at slightly lower rates than France. Finally, France remains a large country capable of meeting its debt; on September 4, it had no difficulty finding investors for 11 billion euros (long-term Treasury bonds (OATs), Editor's note.)

What if the degradation is greater?

A one-notch downgrade isn't good news, but it's doable. Two notches would be something else. There may be a threshold at which investors' judgment changes. But it's not an exact science. Financial crises correspond to sudden drops, with interest rates rising, stock markets plummeting... It's impossible to predict; it's not an exact science. Just as rating agencies don't rely solely on figures, there's an element of analyst judgment.