By Marc Jones
LONDON (Reuters) -Rating agencies issued a fresh round of warnings about France’s sovereign credit score on Monday, as the resignation of Prime Minister Sebastien Lecornu less than a month into the job underscored the scale of the country’s political paralysis.
Lecornu and his government quit just 14 hours after he announced his cabinet line-up and only 27 days since becoming President Emmanuel Macron’s fifth prime minister in 21 months.
It makes him the shortest-lived premier in modern French history at a time when Europe’s third largest economy has a fiscal deficit nearly double the European Union’s 3% limit and a debt-to-GDP ratio heading towards 115%.
‘LIMITED SCOPE FOR SUBSTANTIAL FISCAL CONSOLIDATION’
Fitch, which became the first major agency to drop France into the single A rating bracket last month, said the highly uncertain political backdrop underscored “the limited scope for substantial fiscal consolidation” France currently has.
“A failure to implement fiscal consolidation measures, or a persistent increase in financing costs, that keeps public debt on an upward trajectory over the medium-term could increase negative pressure on the rating,” it added.
S&P Global, which has a negative rating – effectively a downgrade warning – on its AA- French rating, pointed to analysis it published last month that France’s government spending at 57% of GDP was the highest of any country it rates globally.
“The most pressing challenge will be to convince the members of France’s fragmented parliament to accept a budget that enables the country to comply with its EU treaty obligations,” S&P’s analysis added, referring to maintaining a 3% of GDP
deficit.
French debt markets came under renewed pressure following Lecornu’s resignation, with the benchmark borrowing costs close to overtaking Italy’s
Smaller rating firm Morningstar DBRS, which also downgraded France last month but not as far as Fitch, said there remained positives, such as a wealthy and diversified economy, sound public institutions and relatively limited financial stability risks.
European-based Scope Ratings, which has a negative outlook on its AA- score, was another that focused on the persistent political difficulties.
Macron now faces a limited set of options, Thomas Gillet, Scope’s lead analyst on France, said: appointing another prime minister to attempt coalition negotiations once more, or calling another round of snap legislative elections.
“The current political turmoil raises the risk of delays to approve the 2026 budget and significantly limits prospects of meaningful fiscal consolidation measures,” Gillet added.
(Reporting by Marc JonesEditing by Alexandra Hudson and Alison Williams)
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