Sort by *
Communication to the National Assembly’s Committee
on Finance, the General Economy and Budget Oversight
February 2022
Executive summary
At the request of the Finance Committee of the National Assembly, the Court carried out
an investigation into the administration of the public debt and the efficiency of the financing of
Central Government by Agence France Trésor (AFT - French Treasury Agency). This survey
follows previous publications, in particular the report on the situation and outlook for public
finances of June 2021, that on the public finance strategy for the exit from the crisis, produced
at the request of the Prime Minister, and the 2022 annual public report.
This report does not return to the theme of debt sustainability but analyses the
administration of the public debt by each of the general government bodies and more
particularly the administration of Central Government debt by Agence France Trésor.
A continuous increase in general government debt, a growing financing
challenge in financial markets
General government debt has increased continuously over the last decades to stand at
€2,834 billion at 30 September 2021, or 116.3 points of GDP. Central Government bears the
largest share of the public debt, nearly 80%, to the tune of €2,230 billion, due to its recurring
deficits for 40 years but also to its role as reinsurer which leads it, in times of crisis, to take on
the financing of a large part of the measures to support or revive the economy.
Central Government, the other central government bodies and the social security funds
now cover most of their net borrowing by calling on the financial markets, the consequence of
an old process of disintermediation. Bank loans nevertheless remain the preferred mode of
financing for local authorities and hospitals. Although Central Government dominates the
sphere of public issuers by its issue volumes, the other entities are financed by a different
range of securities.
In a context of a marked increase in their indebtedness, public issuers have been able
to benefit from favourable market conditions due to accommodating monetary policies
(lowering of base interest rates, asset purchase programmes), which have led to a reduction
and maintenance of interest rates at historic lows.
Agence France Trésor’s organisation favours flexibility
Agence France Trésor (AFT - French Treasury Agency) was created by decree on 8
February 2001. It is a department with national competence under the authority of the Minister
of the Economy, Finance and Recovery and reports to the Director General of the Treasury. It
is primarily responsible for managing C
entral Government’s debt and meeting its cash needs.
It can also be responsible for managing the financing of entities other than Central Government
by agreement, as is the case with the Caisse d’amortissement de la dette sociale (Cades
Social Debt Redemption Fund) since 2017.
The reference documents, such as the general operational framework, mention that the
management of Central Government debt is carried out “
in the best interests of the taxpayer
and under the best conditions of security
”. AFT’s missi
on is thus broken down into three
objectives: the issue itself of the volumes, governed each year by the Budget Act, the
minimisation of the cost of these issues and the management of the related risks.
AFT is a compact structure whose size has changed little despite the sharp increase in
public debt. It employs 48 people, including 7 under the management agreement with Cades.
It is organised along conventional lines for a issuer of this nature.
AFT’s positioning is geared towards market operators and it re
lies heavily on a group of
banks who are primary dealers (SVTs - Spécialistes en Valeurs du Trésor), which play a key
role as buyers of bonds issued by AFT before reselling them on the market, as facilitators of
the secondary market in Central Government securities and, more generally, as advisors to
the agency. The status of Primary Dealer is granted every three years after a selection which
led in December 2021 to the renewal of the 15 institutions previously selected. This SVT
system has been operating satisfactorily in France since 1987 and is found in most major
A robust strategy that has made it possible to meet the increase in
financing needs with the health crisis
AFT’s issuance strategy is guided by the principles of regularity, transpare
ncy and
flexibility. The main element of AFT’s strategy for its regular issues, but also when it wants to
develop innovative products (such as indexed Treasury Bonds or green Treasury Bonds), is
to ensure that there is sustainable market demand. for these products, as all sovereign debt
issuers do.
AFT believes that the surest way for SVTs to buy French debt and at the best price for
the tax payer is for the securities issued to correspond to investor demand. Thus, one week
before each medium and long-term auction, the agency has a discussion with the SVTs to
understand market expectations for the upcoming issue and to calibrate the latter as best as
possible, in terms of type of securities (nominal or indexed bond, benchmark bond or older),
maturity or volu
me. This principle, applied consistently, has established the agency’s credibility
among market operators.
These guidelines have continued to prevail in the face of increases in net borrowing
related to the health crisis. In 2020 and 2021, net issues of medium and long-term French debt
thus increased very significantly to reach €260 billion, compared to €200 billion in 2019.
Facilitated by the major presence of the Eurosystem as a buyer on the secondary market, the
excess debt was correctly absorbed by the market. It also benefited, in terms of its financing
resources, from the significant increase in deposits from Treasury correspondents.
This market demand monitoring strategy has contributed to the increase in average debt
maturity over the past fifteen years. It stands at 8.4 years in 2021 after 8.2 years in 2020 and
is above the main comparable countries, with the exception of the United Kingdom, but where
pension funds have a unique position in Europe.
This strategy has also contributed to resorting to issues from old bonds, carrying a higher
interest rate, and led to the generation of issue premiums in a context of very low rates and
massive purchases of securities by the Eurosystem. According to estimates made by AFT at
the request of the Court, all the premiums received by Central Government up to 2020, net of
their amortisation, have led, all other things being equal, to a reduction in outstanding public
debt of around 4.3 points of GDP by the end of 2020. This effect does not result, according to
Court’s analysis, from AFT’s desire to apparently reduce the level of debt.
Finally, the desire to offer innovative financial instruments that meet investors’
expectations has enabled AFT to be a key player in the market for inflation-indexed Treasury
Bonds, which represent nearly 10% of issues. annuals, and green Treasury Bonds. With nearly
€42 billion in outstanding green Treasury Bonds at the start of 2022, France is thus the leading
European issuer of this type of instrument.
If the operational principl
es work well, including in times of tension, AFT’s strategic
dimension and communication could be strengthened. Indeed, once the principles have been
set out, interesting analyses are produced by the agency, particularly with a view to the
meetings of the strategic committee, which brings together qualified individuals to advise the
agency. These quality analyses could be expanded and systematised. Beyond its central
principle of monitoring demand, AFT uses its freedom of action to make management choices
that deserve greater clarification. AFT would also benefit from communicating more regularly
on the key elements of its strategy, particularly to the economic and academic world, when
they appear in public debate.
A changing market environment with the Euro
system’s purchasing
programmes and the emergence of potential competition from the
European Commission
Since 2014, the Eurosystem has implemented various purchase programmes to support
monetary policy transmission mechanisms in the euro area as well as price stability. In the
context of the health crisis, these programmes have been significantly strengthened by the
introduction of the
Pandemic Emergency Purchase Programme
(PEPP) in March 2020, for a
maximum amount of €1,850 billion. For France, this programme alone represented €271 billion
of purchases between March 2020 and November 2021. The gradual withdrawal of these
programmes, which is beginning to take shape, is a major challenge for an issuer like AFT.
In addition, the European Union has significantly strengthened its presence as an issuer
on the financial markets with the health crisis. The volumes issued to finance crisis support
the Sure (
Support to mitigate unemployment risks in an Emergency
, set up in
2020) and
Next Generation EU
programmes are expected to reach €100 billion and €800 billion
respectively over the next
few years, i.e. around €150 billion per year for the
Next Generation
programme alone.
However, the European debt is perceived in several respects,
particularly in terms of interest rates, as being similar to the French debt. Although in the
current situation, where demand is supported by the Eurosystem, the effect of competition
induced by the European issuer does not lead to a decline in demand for French securities,
this emergence must nevertheless remain a point of attention for AFT.
As with the main principles of its strategy mentioned above, the international
developments which the agency will have to face in the coming years deserve greater
analytical insight, which could for example take the form of prospective scenarios. It reinforces
the need to maintain and deepen a diverse investor base whose structure has been changed
by the Eurosystem’s purchases.
Gradual strengthening of AFT’s role within public issuers to be better
Although public issuers each have their own financial cultures and practices, they
nevertheless share with AFT the problem of fluid access to the market. Against the backdrop
of a sharp increase in financing needs, communication between issuers organised under the
aegis of AFT was strengthened to avoid certain operational difficulties such as overlapping
issuance calendars.
AFT has also intervened for other issuers in the form of technical assistance, particularly
in times of crisis such as for Acoss (Central Agency for Social Security Funds) in the spring of
2020. AFT facilitated the intervention of SVT banks to provide it with additional financing.
The agency functionally incorporated the Cades teams in 2017 within the framework of
a management agreement, at a time when it was anticipated that the latter would cease its
activity in 2024. This operation is almost completed today, although some projects still remain
to be finalised, such as the reconciliation of certain information systems. This successful
integration, which met the objectives of maintaining specific skills in the public sphere, will have
been positive for AFT and for Cades.
Three possible scenarios for changing AFT’s role within public issuers
The central role played by AFT within public issuers raises the question of how the
relationship between AFT and these bodies should develop. In view of recent developments
in AFT’s role, three scenarios can be put forward.
The first scenario is the
status quo
with cooperation based on an informal framework,
temporary actions at constant staffing levels, and a case-by-case examination of the
appropriateness of other possible mandate agreements. This type of relationship may be
widely shared by entities that are sensitive about their management autonomy while
maintaining a periodic link with AFT. However, it does not guarantee either the durability or the
homogeneity of practices and does not sufficiently take into account the change in dimension
of the issues associated with public debt administration in a context that is currently
exceptional, with low interest rates and massive intervention by the European Central Bank,
but which is likely to change over the next decade.
The second scenario is to strengthen the cooperation framework between issuers in the
context of a sharp increase in debt issues. This may involve setting up indicators measuring
the quality of each issuer’s cooperation (information on upcoming transactions, fluidity of
bilateral exchanges, etc.), or even establishing a formal framework, taking into account the
specific characteristics of each entity. This scenario would have the advantage of sustaining
the coordination efforts made so far and avoiding a return to previous situations of lesser
Finally, the last scenario would involve broadening AFT’s scope of action by establishing
new mandate agreements for debt issuance and administration, based on the model of what
was done with Cades. In this scenario, the organisations would retain their financial
independence. It is therefore not a question of AFT taking over the debt of the bodies covered
by a mandate agreement. It would nevertheless be a more engaging process from a functional
point of view, which would ensure a high level of consistency within public issuers. It remains
that among the existing issuing entities, an agreement could be complex to put in place with
Unédic and could come too late with Société du Grand Paris, which has carried out most of its
issuance programme.
However, the possibility of functionally integrating new public issuers emerging in the
coming years could be the subject of an ex ante analysis, specifying the criteria to be used
and matching the agency’s resources with these additional missions.
Beyond sound public debt administration, a public finance strategy is
necessary to ensure the sustainability of public debt
Good public debt administration makes it possible to obtain financing at a lower cost and
to make the best use of the various configurations of the financial markets to raise the funds
necessary to finance deficits. But these deficits are imposed on the debt manager and it is their
current and future levels that are crucial to ensure debt sustainability.
At a time when the level of public debt has continued to rise since the financial crisis and
has now reached a very high level of more than 110 points of GDP and the structural deficit is
expected to be close to 5 points of GDP in 2022, it is crucial to build a public finance path that
will allow the debt to start falling and to rebuild room for manoeuvre in order to cope with the
next economic slowdown.
Continue to centralise the cash of public bodies on the Treasury account (
In order to shed light on the trade-offs that AFT is faced with, deepen the strategic analysis
and carry out an overall review of the strategy each year, to be presented to the Strategy
Committee prior to the preparation of the financing framework for the Budget Bill (
Communicate more regularly on the structural elements of the strategy, especially when
they are in public debate (
Set up monitoring of cooperation and methods for exchanging information between large
public issuers and study the need to formalise cooperation by specifying AFT’s
coordinating role (
Study the feasibility and appropriateness of scenarios for extending AFT’
s role in public
issuers (