The Agence France Tresor has issued on Thursday June 6th ten years bonds for an amount of 4 billion euro, increased to 5 billion with the non-competitive bids after auction and carrying a 0.14% interest rate, including emission premium during the whole duration of the bonds. If we exclude a very short period in the middle of 2016 but, at that time inflation was near zero, France never got financial resources in such good conditions. The ten years market rate, the day after, even fell until 0.11%. During May, it was never superior to 0.35%. Since the beginning of the year, the weighted average yield of French emissions was around 0.20%. In real terms, i.e. if we take into account inflation, France is borrowing with ten year maturity at negative rates, which has never occurred since the great inflationist crisis at the beginning of the Seventies. This situation invalidates the forecasts of the huge majority of economists who, at the end of last year, were foreseeing a rebound of interest rates. It invalidates also and especially the hypothesis, here criticized some months ago when they were published, included in the public finance program. It was possible to read there that the ten years rate at the end of 2019 would reach 2.35% and 3.60% in 2022.
Three points explain this trend. There is, first, the investors trust, with among them, French and foreign banks and pension funds. If there were doubts about France financial equilibriums and solvency as it is the case for some other European countries and most emerging ones, there were no subscribers accepting these prices. The very high level of French household financial saving, to the opposite of their American or British counterparts is contributing to support this feeling. The amount of reserves accumulated in life-insurance is superior to the State net debt. The second point is the persistence of a very low inflation. Globalization and these who would be the beneficiaries to the detriment of these who are left aside are permanently criticized, but it is forgotten that it is international competition, along with innovation, which is at the origin of the near disappearance of inflation in developed countries. Consumers took advantage of that, at least as far as manufactured goods are concerned. That has increased their purchasing power. Despite uncertainties which weight on the international trade rules, it is highly unlikely that this trend is reversed on the short term and that we see a return of inflation. At last, the European Central Bank has clearly announced that no change in its accommodative monetary policy was imaginable before at least a year. The Federal Reserve in Washington, less anxious about its independence, will not take the risk to perturb the coming presidential election. So, the trust France is benefiting, the competition which slows inflation and the central banks mandates are contributing to maintaining very low interest rates in the coming months or even in the coming years. The economic policy must take that into account and avoid alarming messages and measures which are going against the expected results in this new context. When an action is based on wrong hypothesis, it is rare that it delivers the expected achievements.
So the State must look after taking the best profit of these circumstances and must not try to reduce its indebtedness at any price. Through becoming a Strategic-State without any complex, on financial grounds as on economic ones, it can use the savings generated by the fall of the debt charges to launch or to support investments. Needs are not missing with the energy transition, the modernization of infrastructures and of industrial production equipments. The management of the public debt must be focused on the reduction of its cost. Two thirds of issuances are used to reimburse bonds came at maturity carrying interest rates sometimes ten times higher. It is the same regarding public stakes. It is useless to sale them when they offer dividends much higher than the saving generated by a reduction of the debt. The State could also create a real strategic fund working on the same model as the private equity ones. When enterprises are facing difficulties caused by their shareholders failings or when they don’t find new ones quickly enough, as in the emblematic Ascoval case, it is necessary to get rid of complexes and to intervene through a relevant tool, a public equity fund.
The very low rates are not a parenthesis. It exists a very high probability for that situation lasts. It is why it is urgent that the State includes this new situation in its reflection and in its action.