Since 2004, the rule has been as follows: the Livret A rate is automatically revised, twice a year, on the basis of a mathematical formula combining inflation and interbank rates. In practice, this is rarely the case: it is the executive, in conjunction with the Banque de France, which sets the remuneration for regulated savings. At the risk of triggering a new controversy every six months.
Will the Livret A rate be revalued on August 1st? With more than two months to go, the question remains unanswered. But the trend is not good. Alternately, in recent weeks, retail banks, which distribute the product; the Caisse des Dpts et Consignations (CDC), which manages 60% of its outstandings; the HLM movement, which uses it to finance itself; and even Housing Minister Olivier Klein have made known their opposition to a further rise.
Livret A rate: unexpected bad news for your savings
The question, however, should not even arise. The rule, fixed by an order dated January 27, 2021 (1) is as follows: the rate of Livret A – and by extension of its satellites, the LDDS, the CEL and the LEP, under certain conditions – changes twice a year, in February and August, depending on the result of a algorithm integrating two variables: theinflation excluding tobacco and the short interbank rates.
Clear, the question of its revision is, in principle, a simple matter of arithmetic. But the arithmetic is clear. The price increase in the 1st half of 2023 should be around 5.75%; the half-yearly average of the ster around 2.70%. 5.75+2.70 divided by 2: the Livret A rate should increase 4.20%, against 3% currently, starting from next August 1st. We can however announce it: it will very probably not be the case and this will trigger, for sure, a new controversy.
Booklet A, LEP: these two bad news that await you in August
Against the administrative setting of regulated savings rates
Quick flashback: it has been nearly 20 years since 2004 that the principle of automatic revision of the Livret A rate, twice a year (4 times in exceptional circumstances) and according to a mathematical formula, was put in place . Before this date?
Fixing the remuneration of popular savings was a prerogative of the executive. From 1818, when the booklet was created, to 1984, it was fixed by decree, then, from 1984 to 2004, by a committee dedicated (2). For the same result: for public opinion, the Livret A rate remained a political choice, piloted by the executive. The result: any drop in the rate made it unpopular with savers.
It is, in particular, to put an end to the serious inconveniences linked to the administrative fixing of rates that a report (3) commissioned by Bercy and signed by Christian Noyer and Philippe Nasse, recommended in January 2003 to opt for a automatic indexation of the Livret A rate. A proposal implemented from July 1, 2004 by Francis Mer, then Minister of Economy in the Raffarin government.
The latter, however, did not go to the end of the logic of the Noyer-Nasse report. The executive kept the power to waive the new rule, in exceptional circumstancesand to set the rate itself, on a proposal from the Banque de France.
The quasi-permanent drug
Originally designed to find the best compromise between, on the one hand, the interest of savers (a positive return, i.e. higher than inflation) and, on the other, that of banks and borrowers (a resource close to market rates for their loans), the calculation formula has been adjusted several times since 2003. The latest, in 2018, clearly tipped the balance in favor of banks and borrowers, by removing the inflation flooror this rule which meant that the Livret A rate could not be lower than inflation excluding tobacco.
The power of drug, on the other hand, remained. And what should have been the exception, the derogation in the event of exceptional circumstances, has become the rule. Over the last 10 years alone, automatic review has only taken place twice:
The power of exemption was used 9 times. But only twice in a way that is unfavorable to savers, so to limit a rise in the rate:
Other government interventions have t rather favorable to savers, in a context, it must be said, very particular. At the heart of the 2010 decade, faced with low inflation and low market rates, the public authorities made the choice to smooth the fall in the Livret A ratewhich could have reached 0.25% from February 1, 2015. Exemptions were thus made in February and August 2013, in February and August 2015, then in February and August 2016, before the government decided to freeze the rate 0 .75% from December 2017 to January 2020.
A mathematical formula can hardly render the complexity of the issues around the Livret A
How to explain that automatic revision has, at this point, become the exception? For the economist Philippe Crevel, the answer lies the very essence of Livret A, this savings product so specific to France. The Livret A does not obey considerations of pure economy, analyzes the director of the Cercle de l’Epargne. It is also a political phenomenon, which takes social factors into account. A mathematical formula can hardly render the complexity of the issues around this very special and sacred product. Result: The depoliticization of rate setting, initiated in 2003, was a complete failure.
The current context is a perfect example. Letting the Livret A rate rise to 4.20% would not be without economic consequences. Banks are very against it: this would increase the cost of the resource for them, with an effect on their profitability, explains Philippe Crevel. Same logic for social landlords, who would see the cost of their loans increase in proportion. Above all, a better paid Livret A may change the decisions of households, which could be tempted to save rather than consume. It therefore weighs a risk to economic growth.
Maintaining it at 3%, with inflation close to 6%, also runs a risk, political this time, for the government: that of reinforce social unrest, already fueled by the protest against the pension reform. Hence the probable solution, but satisfactory for no one, of a medium term, 3.50 or 3.75%.
Desecrating the Livret A?
How to get out of psychodrama? Going back to fixing the rate by government decree? By letting the banks set the Livret A rate as they see fit? This seems complicated, reacts Cyril Blesson, a partner at Pair Conseil, which publishes the Cahiers de l’Epargne.
Why complicate life?, continues the economist. With the Livret A, the government seeks to present itself as a bulwark against inflation. But there is an institution, independent of political pressures, whose vocation is precisely to set interest rates to fight inflation and therefore the erosion of the value of heritage: the european central bank. The simplest would be to index the Livret A to ECB rates, possibly taking the STER into account. It would remain attractive, because its yield is net of social security contributions and tax.
In other words, it would be remove both the power of derogation of the Banque de France and the reference to inflation. A solution that would not necessarily be unfavorable to savers: the rate of the ECB’s deposit facility is, for example, currently set at 3.25% and should continue to rise in the coming months. The Livret A, moreover, has not always been, far from it, an effective bulwark against inflation, as this infographic produced in July 2022 shows.
The symbolic impact of such a choice, however, would be unpredictable. It would be possible, believes Philippe Crevel. But it would come back trivialize the Livret A, and therefore renounce its sacredness. The government that will take such a political risk is probably not yet born.
(1) Order of January 27, 2021 relating to interest rates for regulated savings products (2) Banking and Financial Regulation Committee, then Regulated Savings Committee. (3) Christian Noyer and Philippe Nasse, Report on the balance of savings funds, January 2003.