France has begun reducing its reliance on short-term financing as the economy recovers from a recession and government-borrowing needs drop, the head of the country’s debt agency said.
Following a financial shock, governments “want short-term debt to meet short-term needs,” Philippe Mills, chief executive officer of Agence France Tresor, told journalists today in Paris. “You reduce the proportion afterwards. It is what we are starting to do this year and will continue next year.”
The proportion of France’s public debt held in treasury bills will fall to 16 percent by yearend from the 18.6 percent peak at the end of 2009. That reduction amounts to a drop of 14.5 billion euros ($19.7 billion) in the issuance of treasuries, Mills said.
President Nicolas Sarkozy is freezing government expenses and ending fiscal stimulus in an effort to shrink France’s budget deficit by the most since at least 1991. His government said today that the shortfall will drop to 92 billion euros, or 6 percent of gross domestic product next year, from 152 billion euros, or 7.7 percent, in 2010.
“Since the beginning of the crisis, every time the French government has made a forecast it has always been cautious and always resulted in good surprises later,” Mills said.
A year ago the Finance Ministry predicted deficits of 8.2 percent and 8.5 percent in 2009 and 2010. Last year’s shortfall eventually came in at 7.5 percent.
France plans to issue 186 billion euros of medium- and long-term bonds next year, down from 188 billion euros in 2010. The figures are net of buybacks, Mills said. France has already bought back 16 billion euros of bonds maturing in 2011, he said.
The country’s total financing requirement will be 189.4 billion euros next year, including the budget deficit and the repayment of 96.8 billion euros of bonds coming due.
France, which has a top credit rating, has benefited from a drop in borrowing costs since the financial crisis began, Mills said. Yields on its benchmark 10-year bonds have averaged 2.56 percent this year from 2.95 percent in 2009 and 4.15 percent in the period between the creation of the euro and 2007, he said.