Ukraine Warmongering Burns Hole in France’s Budget

French President Emmanuel Macron got a nasty wakeup call on Friday as Standard & Poor's cut its long-term sovereign credit rating from AA to AA−.

The agency cited the larger-than-expected deficit overshoot, but maintained that the outlook remained stable.

It added that, "The stable outlook on France reflects our expectations that real economic growth will accelerate and support the government's budgetary consolidation, albeit not enough to bring down its already elevated general government debt-to-GDP ratio.”

The agency projected that general government debt will reach 112.1% of GDP in 2027, noting that France's debt-to-GDP ratio was the third highest in the euro area after Greece and Italy. The American rating agency assessed France’s track record of “budgetary consolidation” over the past decades as “weak.”

Back in April 2023, Fitch cut its rating on France to "AA-," while Moody's kept it at "Aa2."

The downgrade didn’t come out of the blue and was to be expected, considering that France racked up a budget deficit of 5.5% of GDP in 2023 instead of the projected 4.9%. This fiscal shortfall equal to an estimated 20 billion euros will "complement" the already excessive sovereign debt pile, which stood at 110.6% of GDP in 23Q4. In 2024, France was officially reported as having a debt-to-GDP ratio of 112% by the IMF.

The rating cut will further put a damper on Emmanuel Macron’s hopes regarding the European Parliament elections this month.

According to opinion polls, Macron’s Renaissance (RE) party is trailing the right-wing National Rally (RN) in a distant second place. Macron also lacks a parliamentary majority at home, while his personal ratings swooped to their lowest recorded level last year over his handling of the controversial pension reform and ensuing protests. Some 70 percent of respondents judged him negatively in 2023, as per Odoxa polling. In April, close to three-quarters of French respondents expressed dissatisfaction with Macron's actions since his reelection, particularly in the economic and social sphere, an Ifop-Fiducial survey for Sud Radio showed.

Since taking office in 2017, Macron has vowed to comply with the EU’s Sustainability and Growth Pact (SGP). But when spending hand over fist, getting finances back on track becomes a daunting challenge.

Massive spending announcements have marked the last three years, starting with the coronavirus pandemic. After the West targeted Russia with short-sighted, backfiring sanctions over Ukraine in 2022, the spending surged even more. Fallout from the restrictions brought on Europe’s huge energy and cost of living crises. Costly measures were brought in to support French businesses and citizens, but any such spending party has to end at some point.

France’s debt is such that reimbursing the vast sums would require drastic and unpopular public spending cuts. Macron’s Economy Minister Bruno Le Maire has said he wants to work towards debt reduction in 2024, and bring the deficit to below the EU limit of 3% by 2027. All this would require a serious budget tightrope-walking feat if it is to be done without raising taxes.

Another big-ticket item for France is the Paris Olympics. The bill total is currently approaching nine billion euros ($9.66 billion), but may pass 10 billion euros, a government source told AFP in April.

It is worth noting that amid Macron’s recent ponderings on sending NATO soldiers to Ukraine, France has to spend more on paying interest on the national debt than on military expenditures. The country currently spends 43.9 billion euros on the military, which is 1.94% of GDP, as per Ouest-France. While one might expect the high political stakes to prompt Macron to take stock of the country’s disastrous finances, France and Ukraine signed a bilateral security agreement in February that included pledges from Paris to deliver up to three billion euros in military aid to Kiev in 2024. Government military support to Ukraine from January 24, 2022 to February 29, 2024 equaled 2.69 billion euros, according to the Ukraine Support Tracker, Kiel WP.

With Macron dramatically raising the stakes of Western intervention in the Ukraine proxy war, it remains to be seen how the French leader will fare in the June elections, and once his presidential term ends in 2027.