Treasury Director Sells French Securities

I want to tell you about dinner the other night with Jean-Claude Trichet, director of the French Treasury. He had invited a small group of Boston's fabled money managers to sell them on buying French government securities used to finance its relatively modest deficit. It was in a French-owned hotel and thus, perhaps, home cooking from his standpoint. I know the idea of a high French official peddling bonds in the United States may sound a bit strange. But it reflects the internationalization of capital markets. It also shows, as Mr. Trichet said, that this is a ``new world.''

Trichet told a story to illustrate his comment. He was attending a meeting of the newly formed European Bank for Reconstruction and Development, a multibillion dollar institution recently set up to lend money to help the nations of East Europe modernize and privatize their economies. The point of the meeting was to decide where this bank would be located. Officials from various countries made their plea to have the bank's headquarters located in their capital. Britain, Denmark, the Netherlands, and other countries took turns at explaining why their cities would be desirable. Then a Czech minister got up to offer Prague. After noting the location of Prague in the center of Europe and other advantages, he stated what he obviously hoped would be a clinching factor. ``We have already chosen a building for the bank. It is the Museum for Marxism-Leninism.''

That prompted about five minutes of laughter. Trichet said the Czech was dead serious in the offer. But Britain, as a provider of funds, had more clout and won the headquarters for London.

Back to Trichet's bond pitch. His basic point was that the French economy is now managed most conservatively (though the Socialist Party is in power). The International Monetary Fund (IMF) even predicts that France will have less inflation next year than that bulwark of economic stability, Germany. This, Trichet boasted, is the first time a respected financial institution has made such a happy prediction for France since at least the 1960s. Facing the expense of reunification, Germany will have about 4 percent inflation in 1991, France only 3.25 percent, the IMF says.

The idea of France as a low-inflation country was a ``new world'' to me. To check my memory, I looked up some historical statistical tables. Sure enough, consumer prices in France went up an average of 6.1 percent per year from 1968-73, 10.7 percent from 1973-79, and 9.1 percent from 1979-86. Those numbers are way above West German inflation rates.

Bond buyers, of course, love price stability. So Trichet noted that over the past five or six years, France has lowered its inflation rate an average 0.8 percent per year. ``We are catching up with Germany and Japan,'' he told the money managers, who had just downed a few lamb chops and three other courses. He added that this year's inflation rate should be around 2.8 percent .

He spouted more statistics. France is the fourth largest economy in the world after the US, Japan, and West Germany. The French deficit amounted to 3 percent of national output in 1985, and this year, at $17 billion, only 1.2 percent, it is one of the lowest such ratios in the world. The deficit has been cut in half in four or five years. (Read and weep, President Bush.)

Trichet admits that France has learned from the US in modernizing its financial system. ``We try to be good pupils - but not in all respects,'' he joked.

The well-fed financiers in that room manage many tens of billions of dollars. By selling them French government securities, Trichet would hope to lower French interest rates closer to German rates, saving his Treasury money. Right now, French bonds pay a high interest rate - 11 percent with only about 3 percent inflation. One money manager said it was a good deal. But he wasn't in the market for any bonds at all.