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France: Social Unrest By Itself Does Not Stress Sovereign Ratings

Social unrest in France brought on by the lack of popular or political support for pension reform appears unrelenting. Even though increasingly more tenacious public demonstrations pose a challenge in an already fractious political environment, social unrest by itself is not likely to affect France's (AA (high), Stable) ratings. DBRS Morningstar considers pension reform an important part of the government's medium-term fiscal consolidation strategy and supportive of employment growth. The negative impact of public demonstrations on the French economy has historically been limited. Fiscal reforms are challenging in France even under the best of circumstances, but this is already reflected in the ratings. Persistent public turmoil could work to exert downward ratings pressure only to the extent the unrest further weakens the government's ability to address challenges and to repair the fiscal outlook.

-- While protests appear unyielding, the economic fallout is likely to be limited.
-- Social and political tension could derail the reform agenda, but the willingness to address challenges is a strength.
-- The main credit risk stems from the government's unambitious fiscal targets.

“Frustration on the part of protesters reflects public disapproval of the passage of pension reform without a formal vote in the parliament. We are of the view that the backlash also reflects this government's effort to tackle structural challenges, and this government's willingness to confront controversial, unpopular, and seemingly crucial reforms supports the ratings,” said Jason Graffam, Vice President of Sovereign ratings Group. “While the social and political tensions could derail the government’s reform ambitions, the main credit risk is linked to the government’s ability to rebalance its public finances.”