ON DECRYPT
For the first time in history, the ten-year French debt rate is negative. France borrows since Tuesday at -0.001%, which means very concretely that all those who lend money to the French state are ready to give him a free credit. And even more than free, they prefer to lose some money by lending to France rather than investing their cash in riskier investments.
Since the 2008 financial crisis, central banks have lowered interest rates to support activity. And they bought huge amounts of state debt to avoid a catastrophe, which helped to drive down borrowing rates. But this policy, which can be good news for the state and individual borrowers, also has its perverse effects. Decryption.
Good news: the debt is lightening itself
The French state is heavily indebted. Debt borders on 100% of GDP. And this debt does not fall since we are still in deficit. Every year, the state continues to borrow to finish its ends of the month.
In this context, falling rates is a good deal since it has increased the debt burden from 42 to 37 billion in less than a year according to Bercy, or five billion savings that fall from the sky. And that could double again, according to the projections of the Banque de France.
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Bad news: falling rates do not encourage the state to reform
Falling rates can save money without any effort. Under François Hollande, 40% of the decline in the deficit came from lower interest rates. However, this does not encourage the state to reform and reduce its spending since the latter now automatically fall. This system can not last forever.
Bad news: money set aside is not worth as much
This very low interest rate policy also weakens the banking system it initially aimed to save; when interest rates are at zero, banks make fewer margins. Then, it penalizes all those who have money aside: savings do not pay much.
Good news: homeownership is becoming easier
The drop in rates is still good news for anyone who wants to buy real estate. "If France borrows at lower rates, banks also borrow at lower rates, so they will lend at the lowest," reports to Europe 1 Maëlle Bernier, spokesman for MeilleurTaux.com. "Mortgage rates for individuals are not yet at their lowest and rates below 1% could become widespread in the coming weeks," she adds.
The lowering of rates increases borrowing capacity and allows people who could not borrow so far to do so, while earning a few thousand euros on the cost of credit. Beware, however, this decline could also encourage households to borrow too much debt.