France’s Credit Rating Downgrades by Fitch and S&P
In September, Fitch downgraded France’s credit rating from AA- to A+, followed by a similar downgrade by S&P in October. In this blog, the reasons for this downgrade and the impact on insurers are discussed.
In September, Fitch [1] downgraded France’s credit rating from AA- to A+, followed by a similar downgrade by S&P [2] in October. Credit ratings reflect a country’s ability to repay its debt and influence investor confidence, borrowing cost and overall economic stability. The downgrade by both Fitch and S&P signals growing concerns over France’s fiscal outlook, rising debt level and structural challenges. Meanwhile, Moody’s Investors Service has kept France’s rating at Aa3 (equivalent to AA-) but revised the outlook to negative [3]. Credit rating agencies like S&P and Fitch play a crucial role in assessing a country's creditworthiness by evaluating its economic stability, fiscal policies, and ability to meet debt obligations, which helps investors determine the level of risk associated with lending or investing. Historically, France has maintained a strong credit rating. Prior to October 2011, the country held a prestigious AAA rating from S&P, Moody’s, and Fitch. However, between October 2011 and November 2015, all three major credit rating agencies downgraded France to AA+, and subsequently to AA. France’s credit rating faced further pressure after the COVID-19 pandemic, leading to an additional downgrade to AA-. Most recently, both S&P Global and Fitch have lowered France’s rating to A+. Both Fitch and S&P downgraded France for a number of key reasons: (1) rising government debt burden, (2) large and persistent budget deficits, (3) political instability and reform fatigue and (4) slower economic growth. In other words, the agencies believe that without stronger and more sustained reforms, France’s fiscal path has become riskier. When investigating the 10-year sovereign yield per European country, France has a yield higher than Greece and similar to Italy.Source: TradingEconomics.com, data as of 07-11-2025, 15:30.
Macro & Eurozone implications
For France the downgrade increases borrowing costs as investors demand higher yield on government bonds. It can also weaken investor confidence further, potentially reducing foreign investment and slowing economic growth. Within the Eurozone, France’s downgrade might raise concerns as it is the Eurozone’s second largest economy. A spillover effect on the rest of the bloc could happen. Investors may begin reassessing the risk of other highly indebted Eurozone countries, such as Italy or Belgium, leading to higher borrowing costs across the region. The French government's response to the recent credit rating downgrades by S&P and Fitch has been to reaffirm its commitment to fiscal discipline and structural reforms aimed at reducing public debt and restoring investor confidence. Finance Minister Roland Lescure emphasized that it is now "the collective responsibility of the government and parliament" to pass a budget by year-end, ensuring the fiscal deficit is on a path to the European Union ceiling of 3% of GDP by 2029 [2]. France is expected to focus on implementing long-term reforms such as pension adjustments to stabilize their finances.Impact on Insurance companies
The downgrade also has implications for insurance companies, particularly those subject to Solvency II capital requirements. Many insurers use methodologies such as the “second-best rating” approach, model credit-spread based on ratings and model migration risk. Under these frameworks, a downgrade of France can trigger higher capital charges on French government bond holdings. As a result, insurers may have to rebalance their portfolios to maintain capital efficiency.Conclusion
In 2025, both Fitch and S&P downgraded France’s credit rating to A+, citing rising government debt, persistent budget deficits, political instability, and slower economic growth, which signal growing fiscal risks. The downgrade has increased France’s borrowing costs, weakened investor confidence, and raised concerns about potential spillover effects on other Eurozone countries. In response, the French government has reaffirmed its commitment to fiscal discipline and structural reforms, including pension adjustments and budgetary measures, to stabilize finances and restore investor confidence.
Written by Pim Burgers, consultant of Risk at Work. To learn more about credit ratings, feel free to contact at pim@riskatwork.nl.
