Eclipsed for a time by the billions of euros of investments announced at Choose France, the sensitive subject of public finances is sure to resurface. Certainly, Fitch and Moody’s maintained their opinion on French sovereign debt at the end of April. But we are now awaiting S&P’s decision on May 31. Will the largest American rating agency decide to downgrade France, which currently gives it an AA rating, with a negative outlook? In any case, the risk of a drift in the French debt is to push up the borrowing rate of the French State, further increasing its interest burden.
However, the situation does not really worry Eric Coquerel, the LFI deputy who chairs the Finance Commission of the National Assembly. “The debt is not a problem in itself. France is not bankrupt, there is no danger in the matter,” he said in an interview with Echoes last week. And to bring his solution on a platter: “I think […] that we should free ourselves from the tyranny of the financial markets, by financing ourselves directly from Central Banks or through a “Treasury circuit” as existed before 1973.”
Enough to raise eyebrows at Laure Quennouëlle-Corre, a specialist in contemporary economic history, for whom this belief that “it was better before” – before the 1973 law in this case – has no basis. Contrary to what the MP suggests, this text did not put an end to the financing of the Treasury by the Bank of France. The historian sets the record straight: “This law established better supervision of advances [NDLR : des prêts de court terme], thus clarifying the relationship between the Treasury and the Banque de France. The first could always draw from the second, according to agreements which capped these advances.” Eric Coquerel’s response in the economic daily is, in his eyes, just one more example of “a series of speeches from the extreme left, but also from the extreme right, affirming that in France, the debt problem comes from the law of 1973, which would have been inspired by Pompidou, former investment banker, with a view to eliminating the possibility of the State obtaining financing from the Banque de France. It’s wrong ! This discourse feeds anti-finance conspiracy theorists,” she adds, recalling that the independence of the Bank of France dates, in fact, from 1993 and the Maastricht Treaty.
Eric Coquerel’s proposals raise other objections, on this complex subject which raises the question of the role that we intend to give to the State, and to the market. Financing from central banks and the Treasury circuit are two distinct subjects, insists Laure Quennouëlle-Corre: “The Treasury circuit allowed the latter to finance itself outside of central banks, from financial establishments or public companies , and thus reduce the printing of money.”
This forgotten mechanism was intended to drain savings resources from the French economy to fill public deficits. “Beneath this technical term hides a simple idea, describes the historian in her latest work, Debt Denial. A French story (Flammarion, 2024): bring State spending back into its coffers by all possible means, in order to limit the creation of money.” “The administered management of short-term debt allowed the Treasury to benefit from resources including he himself set the price authoritatively, without confronting the free play of supply and demand”, writes another specialist on the subject, the sociologist Benjamin Lemoine. The system consisted in particular of the automatic redirection to the Treasury funds of savings deposited with Treasury correspondents. These correspondents designated public organizations and companies such as the Caisse des Dépôts et Consignations, the Caisses d’Epargne, the Crédit Foncier de France, the PTT or the SNCF, which were required to deposit their outstanding funds with the Treasury. Furthermore, payment by check has been widely promoted, to limit the circulation of notes.
From Vichy to the resistance
It was at the start of the Second World War that the Treasury circuit took on real importance, defended by Paul Reynaud in December 1939, recounts Clara Léonard, historian of the Avant-garde Institute: “The Minister of Finance announced the implementation implementation of this large-scale policy The circuit was presented as a real choice, among many other options: inflation, tax, short or long term debt, internal or external. The circuit is then brandished as a weapon to defeat Hitler. Ironically, it was especially widely used during the Occupation. Surprisingly, the principle will be carried “as much by economists or senior civil servants who supported or participated in the Vichy regime, as by members of the Resistance, who wanted to perpetuate it after the war”, notes the historian in her thesis. The Treasury circuit will establish itself as a tool of Reconstruction after 1945.
A bill to constrain the banks
From 1948, a new lever was activated: commercial banks were forced to keep a minimum percentage of their assets in the form of Treasury bills. An idea that caught the eye of LFI deputies, to the point of leading them to draft a bill, dated December 21, 2023, providing that financial institutions be “required to use at least 15% of their own funds in equivalent Treasury bonds. All this, after having stated in the preamble: “It is better to fail finance than our compatriots.”
Deemed inflationary by certain economists – but there is debate among researchers – the Treasury circuit was gradually abandoned during the 1960s, while the first auction of Treasury bonds on the market took place in 1963. For the State , financing via the market had the advantage of avoiding having to submit to the vote of Parliament, as required, a contrario, the advances granted by the Bank of France. “It worked in a dirigiste and closed system, it is not feasible to return to it today. We could not force the banks to subscribe to public securities [NDLR : bons ou obligations du Trésor], points out Laure Quennouëlle-Corre. This discourse is disconnected from reality in a globalized and Europeanized economy.”
Without going so far as to force commercial banks to cover public deficits – the idea seems anachronistic – Clara Léonard believes that we could draw inspiration from the principle of the circuit, as a non-market mechanism having an influence “on the conditions of public financing through regulation or the intervention of a public institution”, in particular to finance the energy transition in Europe. “With the Transmission Protection Instrument [NDLR : un outil de la Banque centrale européenne destiné à lutter contre le risque d’une nouvelle crise des dettes souveraines], the ECB has more and more power. We are already in a situation where we go through institutions to act on financing conditions, without always giving free rein to the market.” At the end of the European elections, will the idea gain ground in Brussels ?
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