FILE PHOTO: General view of the skyline of La Defense business district with its Arche behind the Arc de Triomphe and the Champs Elysees Avenue in Paris
FILE PHOTO: General view of the skyline of La Defense business district behind the Arc de Triomphe and the Champs Elysees Avenue in Paris, France, April 14, 2019. REUTERS/Regis Duvignau

December 14, 2020

By Leigh Thomas

PARIS (Reuters) – France has ordered a dozen public and private bodies to keep their deposits at the Treasury, government documents show, as it quietly builds up safeguards to reinforce its cash flow during the pandemic and ahead of Brexit.

In a finance ministry document, dated Dec. 2, a government edict or ordinance shows that the public bodies include the national unemployment agency and the bank deposit guarantee fund.

“In the context of a sharp increase in debt resulting from public intervention in the face of the health crisis, this ordinance aims to extend the obligation to keep deposits at the Treasury to certain bodies that were exempted until now,” a finance ministry document accompanying the ordinance said.

The previously unreported move potentially puts billions of euros at the government’s disposal without having to tap debt markets to meet its day-to-day financial commitments. It comes amid record French borrowing to keep the euro zone’s second biggest economy afloat during the coronavirus pandemic.

The Finance Ministry did not have an immediate comment about why the step was being taken now.

The ordinance does not require immediate compliance but is a legally binding mechanism.

France has had no trouble selling debt on financial markets during the coronavirus crisis since the European Central Bank stepped up its bond buying in March. French bond yields are currently at record lows and only 20 basis points over those of Germany.

(Graphic: French government borrowing costs –

However, as the world economy seeks an exit from the pandemic downturn, the government’s measure enables the state to turn to these extra reserves and reduce its borrowing needs should investor jitters — like the tensions in March over concerns surrounding Italy’s solvency — complicate France’s usual easy access to global markets.

Tying the move to the coronavirus crisis and Brexit, the ordinance said: “Pooling cash allows the state to reduce its debt burden by replacing debt issuance with cash resources.”

“The lower debt allows the state to reduce its financing requirement and reduce its cost to the French, which helps limit debt servicing,” it said.

The bank deposit guarantee and resolution fund, a private body that compensates depositors and investors if a bank goes bust, is financed through contributions from banks. It has 5 billion euros ($6.07 billion) in reserves. A spokeswoman for the fund said it was still to be determined whether all of its reserves or only part would be deposited at the Treasury.

The Pole Emploi unemployment agency, which last year paid out 37 billion euros in jobless claims, is also included in the ordinance. A spokeswoman for the agency said that it had received an exemption from the ordinance. This can be revoked if the state really needs access to the cash.


France has long required public entities like municipalities and hospitals to keep reserves on accounts at the Treasury rather than with banks.

A government impact study cited in a report by the Senate estimated that over the last two decades pooling cash at the Treasury reduced state borrowing by 200 billion euros, saving 70 billion euros in debt servicing costs over the period.

The total amount on account at the Treasury surged to more than 150 billion euros as of the end of October from 128 billion at the end of 2019, the ordinance and the government impact study showed.

Nearly half this increase originated from the CADES social debt amortisation fund. The CADES, a public body that handles debt under France’s social security scheme, already deposits its cash at the Treasury. It took on an additional 136 billion euros in debt related to the coronavirus crisis this year and has alone seen its deposits jump to 10 billion euros from 3 billion, a Finance Ministry source said.

Until paid out, that cash too reflects on the Treasury account and “is a source of financing for the state,” the Finance Ministry source said.

The government said on Friday the budget deficit was now expected to hit 8.5% of GDP next year, raised from an estimate of 6.7% in September after tax income dropped and extra spending spiralled following a second lockdown in November.

Nonetheless the Agence France Tresor public debt agency has said it does not need to increase its bond issuance from previous plans for an already record 260 billion euros, judging it could cover the bigger deficit through T-bills and cash resources like those on the Treasury account.

The AFT said it had also been given the green light to create if necessary a repo facility to raise extra cash in a pinch, which it said other European countries could already do.

The facility allows the state to issue debt to itself that can in turn be lent to the repo market, raising up to 20 billion euros without having to disrupt its usual monthly auction schedule, which could otherwise trigger ructions.

($1 = 0.8237 euros)

(Reporting by Leigh Thomas. Editing by Jane Merriman)

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