Edited by Peter Lee
Maastrickery
The French government has staked its life on bringing down the country's budget deficit, but capital markets sources believe it is unlikely to achieve its goals. If it doesn't, that will lead to some emergency funding and probably some bond issues in the first half of the year. Sources at several large investment banks say they are already negotiating with the French treasury to handle new issues that would cover an expected Ffr15 billion to Ffr20 billion shortfall in financing the social security system.
The government already plans to net Ffr290 billion through government bond issues this year. But bankers predict they will need even more to cover a shortfall in the budget that could be as large as Ffr140 billion. These bankers expect public bond issues to exceed the planned total by at least Ffr30 billion to Ffr40 billion.
The bonds may enjoy a strong reception. Hopes for further French interest-rate cuts have attracted foreign buyers. Other investors have taken some comfort from the government's stated commitment to economic austerity. Last November, a single foreign bank snapped up half of the Ffr17.8 billion bonds sold by the government under its OAT auction.
It is not clear how much of the expected shortfall will be funded through bond issues, but the government's options are narrowing.