France escapes degradation, but remains on the verge of doubt

The images of burned public buildings, looted businesses and clashes that marked last weekend are obviously not enough, on their own, to change the sovereign rating of a country. A rating agency does not judge a state because its analysts were shocked by images of chaos. Moody's confirms this principle, choosing this Friday evening to leave France's rating unchanged. There remains a much broader question, which one agency takes very seriously: the ability of a country to remain stable, credible and capable of honoring its financial commitments.

Because, behind the debt and deficit figures, there is also confidence. This is one of the lessons of a recent IMF study devoted to the mechanisms of the major rating agencies, signed by Olivier Blanchard, Daniel Leigh and Prachi Mishra. The three economists analyzed the ratings assigned by S&P, Moody's and Fitch to 132 countries between 1995 and 2025. Their conclusion is clear: the debt already accumulated weighs much more heavily in the rating than the future efforts promised to reduce deficits.

“The ratings give much more weight to current debt than to forecast budget deficits,” write the authors. In other words, the agencies are more sensitive to the stock of debt already accumulated than to promises to restore public accounts. An observation that could be summed up by a simple principle: “One hold is better than two.” The agencies also underestimate, according to the authors, the effect of the differential between interest rates and growth, the famous “r - g”.

But the study goes further. With comparable debt and deficits, two countries can receive very different grades. For what ? Because the specific characteristics of each country also play a considerable role. The three authors even note that “country-specific effects” constitute “the main determinants of ratings”. And the differences in this area are far from being anecdotal.

To measure it, economists built a simulation to estimate the level of debt at which a country risks losing an S&P rating of at least AA, with a probability of 50%. It is therefore not an official threshold set by the agency, but an indicator of what the authors call “debt tolerance”.

The ranking is particularly revealing. Singapore comes very far in the lead: in this simulation, the country could reach a debt representing 272% of its GDP before reaching the tipping point. Germany follows at 248%. Switzerland is also very high, close to 230%. France appears at 135% of GDP, compared to 161% for the United States. Italy is at only 89% (see graph below).

These figures should not be interpreted as predictions of deterioration. Rather, they make it possible to measure the implicit leeway granted by an agency, in this case S&P, to different States. And this margin strongly depends on the credibility acquired by each country. “The level of debt required to achieve a given rating with a given probability varies considerably from one country to another,” the authors point out.

Machine-translated from French