France is preparing for a number of important revisions of its sovereign rating starting next week, the risk of relegation increasing against the background of political uncertainty. The Paris government faces a vote of confidence on Monday, after the parliamentarians have shown reluctance to the Public Debt Plan, writes Reuters. France's rating has already been relegated to Moody's after the previous government collapsed, and a new relegation would be a stronger impact, moving the country to a lower category and increasing the risk of forced sales of the bonds already under the pressure of the markets. Aman Bansal, Senior European Strategist Senior to Citi, emphasizes that the vote of confidence could increase the risk of a relegation: «If the Government does not pass the trust related to the need for fiscal consolidation, this would confirm that there is little political or electoral appetite.» Even if the government survives the vote, France's difficulties in debt control suggests that the risk of relegation will persist, especially since two of the «three big» rating agents already have a negative perspective on the French sovereign rating. Fitch, often considered the first player to move ratings, will review the rating AA- with a negative perspective on September 12. Moody's and S&P Global, which provide equivalent assessments, follow in October and November. Jens Peter Soerensen, Chief Analyst at Danske Bank, warns that the highest risk arises if a government falls question the deficit reduction plan, and Fitch would interpret this as a confirmation of negative perspectives. The agency recently adopted a harsh position in the case of Finland and Austria. On the other hand, Rohan Khanna, the head of the euro strategy at Barclays, believes that the relegation of an issuer in a new rating category is difficult. «It is complicated to relegate the second largest economy in Europe. The appointment of a new prime minister could reduce the probability of rating changes.» Morgan Stanley estimates that it could be too early for Fitch to relegate France, given the already pessimistic expectations. In March, Fitch forecast a deficit of 5.6% for next year, far above the government target of 4.6%, and anticipated elections this year. Political turbulence added uncertainty to transactions on the capital market, according to Parisian bankers, affecting the appetite of investors and the attractiveness of France as an investment destination. However, the action markets did not register as high as last year, after the surprise announcement of the elections anticipated by President Emmanuel Macron. Experts say that rating agencies react slowly, and France's debt already reflects lower rating levels, with higher yields than those of Spain and Greece and close to that of Italy. A relegation in a new category could trigger forced sales and oblige investors to allocate more capital to hold French bonds.
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