France borrows at record low rate despite debt burden

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A staff member of the Bank de France shows the new 10-euro banknotes, on September 23, 2014

A staff member of the Bank de France shows the new 10-euro banknotes, on September 23, 2014 (AFP Photo/Eric Piermont)

Paris (AFP) - France borrowed to fund its huge debt and excessive deficit at a record low interest rate on Thursday, the day after a grim budget statement.

Despite severe problems with public finances, the country issued mainstream 10-year debt bonds to raise 3.548 billion euros ($4.48 billion) and was able to obtain a rate from the market of 1.23 percent, the treasury department said.

This was a record low rate rate for such an issue and was markedly lower than the previous record of 1.32 percent on September 4.

At a previous sale on July 3, France had paid 1.77 percent to borrow.

The rate which investors and savers demand in return for lending a government for 10 years, a time span which inherently covers many risks, reflects the degree of confidence in an economy and in policymaking.

The exceptionally low rate obtained by France reflects in part extremely low market rates owing to easy-money policies by the European Central Bank which is pushing cash into the eurozone economy to stimulate activity so as to push up prices and avert a threat of deflation.

This week Germany, which serves as a benchmark on the eurozone bond market, was able to issue 10-year debt at less than 1.0 percent for the first time.

The latest issue by France also indicates that the country continues to be attractive to bond investors despite the parlous state of its public finances and weak growth which is bumping along at almost zero.

France's public deficit, which EU rules state must be below three percent of total economic output, will reach this target only in 2017, Finance Minister Michel Sapin said on Wednesday. Previously France had pledged to bring it back to that level by 2015.

Sapin forecast a very gradual recovery for the French economy, which he said would reach a level of two percent growth only in 2018.

The French statistics office announced on Tuesday that the country's national debt had risen above the bar of 2.0 trillion euros for the first time -- or 95.1 percent of gross domestic product.

For the whole of this year, the government expects to have to borrow 173 billion euros, and next year 188 billion euros.