The last annual report of Agence France Trésor, which is in charge of managing French State debt and was chaired by the head of the Treasury, Bruno Bezard until he was replaced by Odile Renaud-Basso last summer, has revealed that the amount of issuance premiums collected by France in 2015 reached near 25 billion euro. The same report (p.20) shows that this situation is quite atypical in the eurozone since Germany collected ten times less and Italy, another major borrower, three times less.

What are we talking about? The State, through AFT, when it issues a bond, can offer to subscribers the market interest rate. They pay the bond at its nominal value. But AFT can also propose securities carrying much higher rates. For instance, on 2015 August 6^th, two bonds carrying 5,75% until 2032 and 4% until 2060 were issued when rates for these long term maturities were much lower. As a consequence, subscribers accepted to pay issuance premiums respectively of 62% and 48% of the face value of the securities, which resulted the same day in a cash transfer to the French State of 1.9 billion euro. This money is the counterpart of the artificially high interest rates subscribers will receive during the whole duration of the bond, contributing to the increase of public debt charges in the coming years. These practices, AFT has disclosed, brought in near 25 billion. But that money has been allocated to the State cash position and has not been included in the evaluation of 2015 budget deficit, even if they are permanent receipts. But their counterpart, corresponding to the interest rates paid in the following years to the subscribers, will be definitely taken into account as public expenditures in the calculus of future deficits. National Accounts Chamber got worked about and AFT answer has been limited to technical considerations related to the necessity to increase the liquidity of some categories of securities. It is especially unconvincing since it is quite a new practice by its volume. It was non-existent until 2008, then represented as an average 7.5 billion a year between 2009 and 2014. How is it possible to justify it has been multiplied by three in 2015?

It has not prevented from going on in 2016. First estimation gives that the amount of premiums received by the State this year are near 27 billion. As an example, the last bond issuance of the year, in December, carried a 4.5% interest rate with a maturity extended to 2041, three times higher than the market rate. The premium reached 61% of the face value of the security. The issuance has brought in 2.9 billion compared with a nominal value of 1,8 billion. So the premium reached 1.1 billion. Money cashed since the beginning of the year has been so abundant that the last two short-term issuances scheduled in December were not anymore necessary and have been cancelled. It is especially absurd and again penalizing public finances because, since the beginning of the year, short-term debt carries negative interest rates due to the European Central Bank policy. During the 4^th quarter, the average rate was -0.6%. Every issuance was bringing in money to the State.

In all, during two years, more than 50 billion euro entered in public finances accounts without being taken in consideration in the calculus of the French deficit, according to Maastricht criteria. Even if a very small portion of these sums has been used to finance anticipated redemptions of securities close to their maturity and carrying high interest rates, the consequence of this policy will be, for the State, during the following budgets, to suffer from an artificially high charge of the debt, which will make more difficult to fulfill the promise of a comeback under the 3% ceiling.

When we know the intensity of the debates regarding public finances which are going to happen during the coming elections, the demands from both camps, and recently those issued by armies, problems affecting some big companies, including EDF, to restructure their balance sheets, sacrifices promised to civil servants, and to French people through an expected rise of VAT rates, it is definitely difficult to understand why French political leaders, current and future, are not concerned by this issue and don’t rise it. Does AFT policy get the support of the government, and, in that case, what are the reasons? Is this policy going to be continued by the next ones because there is no chance, that, in a foreseeable future, we see interest rates to go back to the 4 or 5%  we had in the past, and which are the rates still chosen by AFT to issue bonds?

In addition, this policy has another negative impact. It sterilizes the positive aspects for the French economy of the ECB policy. In offering such low interest rates, the European institution intends to support growth and, indirectly, to reduce the burden of past accumulated debts and, especially, public debts. It allows countries to come back more easily under the 3% ceiling, without forcing them to follow too brutal restrictions in their budgetary policies. It is what Germany has well understood. The country has taken the highest benefit of it and came back more quickly than others with margins of growth. Regarding the argument that policy would facilitate the placement of the bonds due to the too high level of French public debt, compared to Germany, for instance, it is no more convincing since Italy, which has a debt ratio by far higher than the French one, doesn’t use it at the same level.

At the end, there are no pertinent technical justifications regarding the size of that practice. Amounts are so huge that these decisions cannot be without substantial and so political, consequences. The policy followed by AFT, under the supervision of the French Treasury, has not been publicly debated and has not been endorsed by a member of the government. National Assembly and Senate commissions, generally so fussy when they propose amendments whose financial consequences don’t overpass hundreds of millions, have been, until now, passive. But the most surprising is the media silence. We don’t count the number of alarms regarding French public debt, with consequences for our children and the risk of default, with all the possible excess. But nobody seems to be concerned by the way this debt is managed. Time has come for the French Treasury to give some justifications.