The agency strategy: an embedded and bounded rationality

7This type of rational account of the use of agencies can be found within the international “lesson drawing” or “policy transfer” literature. [19] Such analyses tend to overlook the complex, and historically embedded, institutional mechanisms that have contributed to constructing the debt marketing agency as a pertinent issue. [20] Given the long duration of financial and monetary policies, the maximal recourse to capital markets is a bounded rationality for the state, or rather a strategy embedded in a particular socio-technical configuration. Reassuring creditors by reorganizing their own offices constitutes a strategic resource within a framework that has not always existed: the almost exclusive financing of government by national and international capital markets. This historical configuration stabilized around the middle of the 1970s, as a result of successive reforms of monetary and financial structures which allowed governments, after World War II, to finance their deficits off-market via “non-negotiable” debt. [21] In France, a collection of administrative regulations sought to coordinate these different public actions by connecting the Treasury to monetary policy, and to the monitoring of banking liquidity as well as to credit allocation to the national economy. Functioning largely as a banker at the head of a network of investor institutions, the state, via its Treasury, directed banks and financial institutions (public or semi-public) in a hierarchical and sovereign manner, controlling the use of their liquidity, and collecting part of this to feed its own coffers. [22] In France, this combination of guaranteed financing and interest rates decided by administrative authority, in coordination with the CB, was called the “Treasury channel” system. [23] In other countries, following other Keynesian institutional models, the coordination of currency and government financing translated at the organizational level into CBs that were integrated into Ministries of Finance, with little independence and with a mandate not limited to price stability. [24] The rebuilding of procedures and the market framework has required the systematic dismantling of this institutional system of administered debt, and the separation in practice of “budgetary” and “monetary” authorities that classical economics distinguishes only in theory. [25] The independence of the CB, then the autonomy of the Treasury from “politics”, guaranteed the impossibility of a recourse to monetary financing of public debt, preventing the CB from being “forced” to finance the Treasury.

8In France, the reconfiguration of government financing structures had been under discussion since the beginning of the 1970s within the Treasury administration at the Ministry of Finance, even though the organizational prototype of the autonomous agency was not yet on the minister’s agenda. The goal was to fight the evil of inflation, which was of concern to the public powers at the time, by progressively substituting the financing of government by recourse to compulsory savings – seen to be more “safe and orthodox” – for administered and monetary financing, understood to be a source of laxity. [26] This required the reconstruction of a market for government borrowing that would be attractive at a national and international level.

9The middle of the 1980s marked an acceleration in this process of marketization. Faced with the need to absorb its budget deficit, the left-wing government in power and the technocratic Ministry of Finance administration refused to open the black box of financing tools (linked to currency) and opened the floodgates of liberalization and internationalization of capital markets. A handwritten note from the management of the Treasury, dating from 1987, points to what was then merely a dream among senior civil servants:

10

“The Director’s collaboration seems certain. We’re going to transform your office into a trading room.” [27]

11The office in question was none other than office A1 at the Treasury, responsible for cash management, financial and monetary affairs, and most notably the issuance of public debt: the ancestor of the AFT. The constraint of conforming to the behavior of the capital market environment was thus reinstated over the long-term mode of action of the administration of the Ministry of Finance. This phenomenon – the contingency of the link and of the degree of the state’s dependency on markets – cannot be understood through approaches that resume the functionalist contractual nature of the relation between a “principal” and its “agent”. These currents of agency theory reduce the conception of politics to the positions of the government in power at the time of the subscription to credible commitment. [28] An analysis of the conflicts and tensions between the administrative sphere – which partly follows its own logic – and political representatives – whose offer toward monetary and fiscal subjects has also been homogenized – is able however to demonstrate how the economic or political “interests” of authority are produced and re-actualized by social and institutional configurations that stabilize the relationship between the national state and its market environment. [29]

12Now reliant on the instrument of capital markets to finance the deficits that they have accumulated over the years, national states entered into competition with one another in order to win over investors and convince them to invest in Treasury bonds. It is this dynamic of state financialization and the pursuit of institutional arrangements preferred by markets (of which the agency model is one component) and which purportedly improve the lender’s credit, that is the real driving force of change. The Holy Grail pursued by the state is liquidity for debt securities, meaning that they can be circulated, sold and exchanged, which does not correlate directly to the fundamentals of public finances – lack of deficit, low level of debt compared to GDP – as commonly understood in orthodox economic thought. In and of itself, the level of debt explains nothing. [30] We should for example remember that Germany (although held up as an incontestable model for the proper management of public finances) and France had almost identical levels of public debt at the point at which the two countries considered a move toward the agency model. In the end, countries with small and weak deficits – public finances considered to be “safe” – pay dearly for their use of compulsory debt markets, precisely because they rarely do so. Their deficits are weakly structured, and their debt is therefore illiquid. [31]

13Intergovernmental organizations, within which administrative national elites, particularly the Treasury, are represented, contribute to the stabilization of the competitive dynamic between issuers of debt securities. They function as platforms of exchange and formalize public policies expected by the actors of capital markets. Progressively a debt management agency “model” – that would subsequently be transposable from one state to another – took shape. It was around the 1980s that the IA began to hold up the model of the agency (or the semi-autonomous office), linked to capital markets, as the norm for debt management. In 1983, the OECD’s first Green Book on government debt management laid out a common framework for different states, preparing the way for the agency doctrine.

14

“In spite of the diversity in terms of location and other institutional features of debt management offices (DMOs), there is general agreement that DMOs should have sufficient autonomy from the political sphere, and that they should be principally concerned with the operational aspects of the management of sovereign debt.” [32]

15The construction of this norm thus involved separating prerogatives relating to debt issuance from other public policies that were previously closely coordinated by the sovereign power: those of currency, and financial and banking regulation.

Organizational boundaries and the normalization of the state as borrower

16The concept of giving autonomy to a debt management structure aims precisely to maintain, through an organizational boundary, a partition between the goals of monetary policy – now in the hands of the CB, which monitors inflation – and the issues of government financing, the concern of the Treasury, which sells its securities and offers creditors guarantees regarding debt service. [33] The OECD and the IMF issued joint recommendations on the “divorce” and “clear separation” between the management of public debt and the implementation of monetary policy. [34] The agency format is intended to delimit and support a jurisdiction, an area of central administrative competency dedicated to the management of public debt, by isolating the commercialization of loans from any other kind of mandate. This disconnect between the monetary and the fiscal is a vehicle for an analysis of public finances: a diagnostic and an agenda for these public policies. A World Bank working document establishes the brief of the responsibilities of CBs and governments:

17

“This thinking led to clear and narrow price stability objectives for central banks, to their greater independence from the government and to the prohibition for central banks to finance the fiscal deficit. Debt issuance to parties other than the central bank became the sole formal way to finance the deficit.” [35]

18By blocking recourse to administered or monetary financing (for example, direct financing by the CB), and by preventing “credit facilities”, the agency model is designed to remove all possibility of the state “distorting” the market through political interference. Thus, faced with the reality of their situation, and having to accept the cost fixed by the market (supposedly a safeguard) to finance themselves, public powers should be able to discipline themselves and focus on the strictly budgetary causes of debt.

19The IA naturalize and seal off the process of marketization of public debt in advanced countries. The multiplication of separate or semi-autonomous offices is promoted as the pinnacle of modern administration, and their recommendations, synthesized in their guides and directives for public debt management, become “transitology” by enumerating the natural and desirable stages of development for capitalist societies and economies, with a view to duplicating the administrative model of “advanced” countries in developing countries. The team from the IMF and the Treasury department of the World Bank noted in a joint document in 2001 the methods conducive to constructing and managing a debt market, listing the implicit “pitfalls”: “competition” must be promoted and “privileges” – understood as undesirable “distortions” of sovereign power – must be renounced. [36] The state-debt issuer must normalize itself, becoming a borrower like any other, and giving up its idiosyncratic sovereign characteristics. Through its very design, the debt management office comes to cement the breaking up of public policies by consolidating the division and separation of tasks between monetary policy, banking regulation, and government financing via market debt. Most importantly, the regulatory or administrative practices of debt management – such as the forced subscription by banks of short-term loans, which might serve as a “prudential instrument” for the state – are proscribed as techniques with a tendency to “distort” the true functioning of the market.

20

“Some pitfalls in debt management:

• Use of non-market financing channels. In some cases, the practice can be unambiguously distortionary;
• Special arrangements with the central bank for concessional credit, including zero/low interest overdrafts or special treasury bills.
• Creating a captive market for government securities. For example, in some countries the government pension plan is required to buy government securities. In other cases, banks are required to acquire government debt against a certain percentage of their deposits. While some forms of liquid asset ratios can be a useful prudential tool for liquidity management, they can have distortionary effects on debt servicing costs, as well as on financial market development.” [37]

21These prescriptions also aim to prevent the sovereign power from putting regulations in place that attribute extraordinary properties to its loans, which would give a biased view of their attractiveness and therefore their real price. The state must conceal its extraordinary status and be evaluated on the same playing field as any other economic and fiscal agent. The role of the IA therefore consists in formalizing, implementing, and transferring models of public policy that engage national states in competition for securing financing on capital markets. Investment companies and holders of compulsory savings, who work globally, support the creation of corresponding institutional infrastructures in each state: a CB that is independent from politics and protects the true value of financial assets from their erosion by inflation, and a “market preserving” debt management office. The aim of the recommendations issued by the IA is to render these changes irreversible. The state is not to be – either now or in the future – in a position to envisage any return to regulatory mechanisms for financing, which are considered to be a threat to financial investments and a form of “fiscal repression”. [38] Trapped in a market environment in order to ensure their survival, states have an interest in conforming to “the expectations of normal roles and criteria instituted in the culture of their organizational field: the imitation of socially valorized forms is seen both as an external constraint and as a strategic resource for the importer”. [39] This competition between states facilitates institutionalized isomorphism, [40] where states’ administrative structures replicate one another in aligning themselves with market expectations in order to legitimize themselves to such markets. [41]

22The IA develop these norms in conjunction with the Ministries of Finance of the different states. Rather than a transfer of public policy where a state – “national receptor” – applies a model of public policy – prescribed by an “international issuer”, the IA – this is an international space of financialized administration, within which common practices are laid out and an emerging market environment becomes the norm. The blossoming of agencies in the majority of OECD countries at the end of the 1990s was not the result of an entirely rational decision on the part of the states: the valid strategies that belong to this new international configuration of the debt market were historically produced and circumscribed by relational structures, and by “institutional factors” [42] connecting the support of the financial markets and the expertise of the IA and concurrent national administrations, transformed into “reform entrepreneurs”. [43] Reforming the debt management unit – in order to remain competitive and to take on debt at the lowest possible price for the state – corresponds to a kind of Realpolitik in a financialized and globalized environment that is no longer examined or questioned by political leaders but instead taken as given. This sphere of multiple incentives has contributed to making the “debt management office” a pertinent option for reform in many different states. National characteristics have however had a strong influence on the construction of a prototype agency adapted to the existing institutional, political, and fiscal context. The institutional solutions and normative frameworks discussed in the international forum of the IA are distorted and continually redesigned by the actual practices of national agents.

Negotiating the French formula for a debt management office

25At the end of 2000, it was the turn of the German Federal Minister of Finance, Hans Eichel, to announce the creation of a private limited company to issue sovereign securities that rivaled French products on the compulsory markets – primarily the German bond (the Bund). Reiterating the unrivaled performance of the Bund, Eichel evoked two reasons for reform: “the rapid evolution of the international financial markets”, and “the launch of the single currency”:

“Since the federal debt will no longer benefit from the traditional preference of international investors for the Deutschmark, state lenders in the Euro zone have become direct competitors to the German state.” [52]

Political voluntarism and a message to investors

26Following the failure of the project to merge the departments of public accounting and tax undertaken by Christian Sautter, Minister of Economy and Finance in Lionel Jospin’s government, a move which had been opposed by large-scale social mobilization, administrative reform was out of favor at Bercy. [56] The challenge for Laurent Fabius, Sautter’s successor in this role, was to relaunch modernization at the Ministry on less politically risky terrain. Fabius focused on debt management with the aim of making the agency a “laboratory for reform”. [57] For the head of the Fabius cabinet, the creation of the AFT was a “display strategy” that aimed to “push through a program of modernization at the ministry” without provoking strikes or making any waves.

27

“[We had to] take up the reins of modernizing the ministry after the victory, as you might call it, of opponents to the merger. In the mind of Laurent Fabius, or at least his advisors, there was clearly this idea to carry out a reform in the ministry that would be socially less costly, since it concerned only fifteen people. But which would still, however, be of interest to the press. And behind all this context of the internal management of the ministry, there was the issue of modernizing public finances, of the public management of finance laws. The AFT was one element in a wider program of modernization at the ministry.”

28On 11 July 2000, at the annual “Paris Europlace” conference, Laurent Fabius announced the upcoming creation of the AFT to a room of bankers and investors. His speech makes clear the entanglement of political will and the development of the financial center of Paris as constituting technologies of public debt.

29

“There are no effective financial markets without an effective economy, and conversely no economy prospers without a solid financial center. The capacity to save, the possibility of raising capital, the dynamism of a country: these are the fundamentals on which success is built. Two conditions at least are required. The first is for public powers to create the favorable environment without which growth and confidence will fail. This is the long-term work that we began three years ago, with three priorities in mind: a return to full employment, lowering taxes, and reducing the deficit and debt. The other condition concerns the transparency, security, and protection of transactions, savers and markets, the formation of actors, and the modernization and adaptation of tools put at their disposal: these are necessities that have become laws.” [58]

30In this spirit, the goal of the state was to ensure the attractiveness of Paris as a financial center through the infrastructures that it introduced, including the reorganization of its own structure. The new agency was also justified as a solution to the reduction of public debt, since its performance should – restricted to issuing public debt on unchanged markets – reduce the burden of interest.

31

“In this spirit, France Trésor will soon become a Debt Management Office directly attached to the Treasury. It will have new ways of working and will recruit market professionals for a more active management of our debt. This structure will have the reactivity and the visibility necessary for its mission.” [59]

32The reform was therefore framed as modernizing and technological. Some senior Treasury officials nonetheless mocked the small blunders which betrayed the politicians’ opportunism in seizing upon market terminology. Laurent Fabius, for example, was enthusiastic in his speech about the financial innovation of “swaps” in public debt management but, according to someone who was there, he could hardly pronounce this English word:

33

“At the time Fabius was looking to create a debt management office, he sought above all to present an image of a modified administrative organization that would ‘make things modern’. So much so that he left himself open to ridicule. As he was reading the speech prepared for him, he said: ‘This debt management office will do chouaps’, and the whole room started laughing. He didn’t even know how to pronounce ‘swap’, [60] and he had even less of an idea of what the word actually meant.”

34The concept of the agency emerged from this encounter between the aspiration of political representatives to a modernized administration, the symbolic profits expected to result from this, and the fashioning by national and international administrations of an agenda for the change and adaptation of the state to the demands of financialization. [61] Behind the scenes, the reconstruction of the Treasury offices raised the delicate question of the role of senior officials and their relationship with political representatives. The maximalist vision of a truly autonomous agency – to the point of considering the “detachment” of the future AFT from Bercy – was initially put forward by the Fabius cabinet. One of the goals of the agency standard is to limit, as far as possible, interference and incompatibilities between the job of politics and the job of debt management, and Benoît Cœuré evokes the agency as an adequate solution to the problem of “conflicts of interest” between budgetary policy, monetary policy, and fiscal policy. It was about “delimiting the mandates of different spheres of action of the state”. [62] The long time-frame of debt issuance and the necessary “investor confidence” are seen as tending to “contradict” the other state departments, particularly those urging public spending:

35

“[…] between different missions of the Treasury (the state issuer encourages the purchase of public credit while the ‘industrial’ state wants to develop the stock exchange), also between the ‘spendthrift’ ministers: the debt manager pleads for debt reduction while the ministers plead famine.” [63]

36The institutional form of the agency is a “shop window” for potential buyers of state securities, and designed to act as a signal for them.

The politics of bureaucratic location

37However, the actual degree of detachment, just like the location of the office supposed to embody “hypermodern” state financial management, provoked debate within the administration. If financial innovation was the goal, why keep the agency at Bercy, within the Ministry of Finance, far from the financial center of Paris (near the Opéra, the Bourse, or La Défense)? Several competing debt management offices are located near financial rather than political centers, including the UK Debt Management Office (in the City of London, rather than in Whitehall), and the debt management office of the Netherlands, which is located in Amsterdam, the country’s financial capital, rather than in The Hague. This physical proximity to the markets arguably demonstrates what matters most: the office’s connection to capital market actors rather than politicians, from whom they are recommended to keep their distance. Often, these locations do reflect the sociological and political nature of the agency: the further an office lies from political and ministerial centers, the greater its autonomy from its parent ministry, and the more it resembles a financial organization or private bank in terms of the profiles and career paths of its staff. Would the quest for modernity in France not be better achieved by moving the agency beyond the walls of Bercy, in order to give it greater visibility and autonomy? A former senior official explains:

38

“There was a huge internal debate at the Treasury, basically, about whether this new body would be within or outside the Treasury. This conflict was underpinned by a real debate: ‘What would the debt management office look like, and what distance would it need from the ministry in order to function effectively?’ And then there was also the issue of administrative power for the Treasury.”

39Mathieu Pigasse, an ENA (École Nationale d’Administration) graduate who began his career as a junior civil servant in the A1 debt management office, was then technical advisor to the Laurent Fabius cabinet. [64] A fervent advocate of the autonomization of the new agency, he faced reluctance from the Director of the Treasury, who did not want to relinquish control of a strategically important department:

40

“What we wanted to do at the time was to autonomize management and methods, on the understanding that the Director of the Treasury, Jean Lemierre, was eager to retain it under his authority. The policy of state issuance was the primary sovereign mission of the Treasury… Really we could have given it a lot more autonomy.”

41Sylvain de Forges recounts that he initially refused the ministry’s proposal that he should create and then lead the new office, because he felt that “disconnecting” the agency represented a break with a tradition that “worked”:

42

“I was explicit with Fabius. I told him: ‘Minister, I’m not interested in working again on the debt, I’ve done that for eleven years. And don’t ask me to do exactly the opposite of what I have built for eight years.’”

43In Germany, the Bundesrepublik Deutschland Finanzagentur GmbH, known more simply as Finanzagentur, was created as a limited public capital company, 100% owned by the federal state. The German debt management office was located in Frankfurt am Main, away from the Ministry of Finance in Berlin. In France, the choice was still to be made regarding the legal structure of the office and the degree of its integration within the Ministry of Finance: should it be a state-owned industrial and commercial entity (an Établissement public industriel et commercial, or EPIC)? Or even a limited company after the German model? There were two options for the “chain of command” at the Treasury: an independent agency, or an agency which remained integrated into the state administration, as part of the established hierarchy. De Forges recounts how he fought against the option of a “Bercy exit”, which he characterizes as “an ancient myth”, and sought to demolish the arguments of the proposal put together by the cabinet. He countered that the reform would attack “the holy of holies” and question the sovereign aspect of the function by separating the activity of issuance, “the casket”, from its parent, the Treasury and the Ministry of Finance. In de Forges’ eyes, the separation of an independent agency could only be an “illusion.” He believed that debt management required the maintenance of a permanent link with political decision-makers, since the “accountability” of management operations was at stake:

44

“If there was a problem, at the end of the day, it would be the fault of the ministry, and they would be accountable. And if there were financial wrongdoing, or a strategic financial error which lost the state money in that area, it would be the minister of finance who would have to explain himself to parliament or on the evening news.”

45On the other hand, for the advocates of the strong version of the norm, externalization would favor greater reactivity to the markets and would send a strong signal of independence in relation to the aims of the state’s financial mandate. The temporality of “active” debt management, embodied in the agency structure, implied that decisions would be made immediately, akin to those of a trader in a trading room. De Forges, countering this argument, claimed that proximity to the ministry was an asset. It was precisely because accountability remained with the ministry, and because decisions had to be taken “with a heavy financial burden and in a very short time-frame”, that the director of the AFT had to have “direct access” to the ministry. Countering the idea that benefits could only come from full autonomy, the office could actually react more quickly if incorporated within the ministry, as a former senior Treasury official explains:

46

“If there’s a problem on the markets, you can’t afford to have a board meeting and hold a vote in order to know if a tender should be cancelled or not: the director of the debt management office has to be able to run to the minister’s office. That’s why Sylvain de Forges fought for the agency to be located in the ministry rather than elsewhere. It might have made more sense to situate it elsewhere in Paris, for reasons of extra space, etc. But he wanted to be close to the minister.”

47The complete separation of debt issuance activities was eventually dismissed from the range of possible options. Jean-Pierre Jouyet, Director of the Treasury during the first year of the AFT’s existence, presented this as an emblem of a specifically French administrative culture:

48

“On the institutional front, we did not want to do what other ‘Treasuries’, notably the Germans, had done, which was to completely externalize the agency from the Treasury department. In fact, it was decided not to separate debt management from the state treasury since they were, in the French tradition, very closely linked.’ [65]

49The compromise finally agreed amounted to a “semi-autonomous agency”, a format that would later also be applied to the Agence des Participations de l’État (APE), which manages the French state’s business holdings. [66] In his interview, Jean-Yves Larrouturou described this as a “neither/nor” solution, a compromise between externalization and the maintenance of the status quo. De Forges eventually accepted the post of the first director of the AFT, which was created by decree on 8 February 2001 as a government agency with national authority (a service à compétence nationale, or SCN), attached to the Director General of the Treasury and Economic Policy and, through him, to the minister:

50

“As a department of the central administration, the AFT has no ‘special privileges’ in judicial and budgetary terms. Its ways of working are those of the Ministry of Finance. The AFT is not an agency… And it’s not its administrative structure, but its way of working that makes it novel.” [67]

51The choice of the SCN structure for the debt management office appears to equate to what a report of the Conseil d’État called a “tailor-made” format. [68] These agencies, with no legal standing, and legally subordinate to ministerial authority, represent a “desire to both delegate everyday management and also maintain control over the area in question”. [69] This ambiguous legal format allowed the ministry to retain hierarchical authority and facilitated the movement of staff within the rest of the administration. Benoît Cœuré sums up the duality of this French formula where the agency is both “a window of the state onto the financial markets” and a service “in the hands of the minister”:

52

“The French experience thus shows that it is not necessary for debt management to be entrusted to an independent agency in order to be effective and recognized by market participants.” [70]

53This median position, in turn, became the subject of discussion by international organizations. In 2001, during a presentation at an OECD workshop in Rome, French representatives claimed that moving the agency outside the Ministry of Finance was “pointless”:

54

“In France, the debate on whether to create a separate debt management agency was opened and closed several times during the 1990s. Finally, in July of 2000, the decision was taken to create Agence France Trésor (AFT), an agency located within the Treasury Department responsible for debt management, cash management and back-office operations. Various factors weighed in the final decision, including issues of democratic accountability, of corporate governance and of the degree of integration between debt management and other public policies. The state’s potential role as financial intermediary taking market positions was discarded.” [71]

55International models and recommendations, therefore, are by no means injunctions to be imposed without the possibility of a filter or process of re-evaluation. In France, reform led to a minimal aggiornamento of the administrative structure which, by remodelling the norm, was able to reconcile the needs of the Treasury, eager to keep this strategic service in-house, with the political will to demonstrate administrative modernization. The organizational reconfiguration was not however without impact on the concrete practices of French financial and budgetary policies.

Socialization to the markets, socialization to the state

57The institutional reinforcement of public debt issuance and Treasury management was effected by increasing staff numbers and introducing possibilities for new recruitment. From its creation in 2001 the total workforce of the AFT expanded, from 27 staff members in April 2002 to 32, including 19 civil servants, in 2004, and peaked in 2012 at 38. Early on, its budget was also increased due to investment in IT programs: initially granted 6.22 million euros (before the IT program) in 2001, by 2004 this surpassed 8.6 million (of which 2.5 million was dedicated to IT). [72] The SCN format allowed the agency to offer attractive salaries to contractual agents coming from the private sector. While the French form of the office reaffirmed the value of senior civil servants in the promotion of state values and raising of capital, it also sought to attract expertise from banking and private finance by making job offers which might suit new recruits. Over a third of the agency’s staff (and the skills associated with them) came from the private sector. As an OECD study anticipated, the agency format, “by proposing more attractive salaries than those in the civil service” can be useful in “retaining highly qualified personnel from the private sector”:

58

“Ministries of Finance in general and debt management offices in particular have thus found themselves in competition with the private sector in trying to attract finance professionals (especially those with particular skills in IT).” [73]

59According to the OECD, these recruits would provide managers with increased “prestige” and “credibility” when “negotiating with market participants” and “implementing healthy debt management”. The press also noted the changing profile of the personnel at Bercy, going so far as to evoke a “partial privatization of the state Treasury”. [74] A journalist from Le Figaro described it as “the arrival of the golden boys at the Treasury” who would, alongside senior civil servants, manage the debt with “great flexibility”.

60The AFT developed a risk management service on the back and middle office model of banks and financial businesses. Employees recruited from the private sector worked on the follow-up of deals, debt purchase and sale operations, and at auctions for bonds and Treasury securities. Here, again, the day to day autonomy of teams was decisive. The AFT opened the way to so-called “active” management, a concrete sign that operations were becoming more complex and carried out in narrower timeframes, and that a certain margin of arbitration with market conditions was becoming possible – such as, for example, the state’s use of swaps.

61AFT staff thus went about their work without constantly referring to the minister, and those meetings they did have with the minister focused primarily on the annual fixing of the financing program, or on the launch of a new product. With the Director General of the AFT, the front office teams – the senior civil servants charged with managing auctions and thus the frontline for banks and investors – had in practice a certain room for maneuver within the program of debt issuance debated and voted for by the French national assembly. The “front office” function remained in the hands of senior civil servants and not “pure traders”, to quote a Treasury member of staff. State servants, as graduates of elite universities, have academic backgrounds – including in engineering, economics, statistics, and state administration – that are highly respected by French financial markets. In addition, front office operators were, traditionally, invited to spend a certain amount of time in bank or investor trading rooms before or during their time at the AFT. Retaining civil servants was a way of reaffirming the singularity of this state interface with the markets: although debt was being actively managed, there was no need to assume the mantle of a market actor as “opportunist as the rest” who sought to “take positions in order to beat the market”. The focus on lowering costs was inseparable from the aims of stability and regularity of issuance. The state would offer liquidity to markets and they, in return, would allow the state to borrow on a grand scale. Although knowledgeable about the markets, the staff of the AFT must not get too close to them. For example, the OECD recommends paying front, middle and back office staff very well so that they do not accept the “generous gifts and other rewards from their private sector counterparts”. [75] One senior Treasury official recounted how he enjoyed turning down the offers of dinner from bankers and invited them instead to a rather more modest snack bar near Bercy.

62The agency was thus indeed semi-autonomous: the daily management of borrowing went on with little interference from the minister and political leaders, but it worked within the Ministry of Finance, and with staff familiar with this institution. This stood in contrast to Sweden and Denmark, singled out by the World Bank as models for the most advanced countries in terms of their externalization and the privatization of recruitment for their debt management service. [76]

State credit derived from the political abilities of high-level civil servants

63The proximity of the new AFT office to the minister, an apparent blot on the model, would however be turned into a strategic asset by senior Treasury officials. The latter sought both to remain political actors and to retain the power of their “generalist” position in public policy, and would benefit from a certain blurring of boundaries: this adaptation of the norm to local requirements, and the various forms “of inspiration, combination, and reinvention” that resulted from it, was a “condition of survival for those in power”. [77] Treasury officials did not wish to confine themselves to the pure “function” of the model and promoted the idea that pushing the boundaries in this way actually represented a commercial advantage over other issuers. While the model assumes an opposition between the technicality of debt management (via relationships with banks and investors) and arbitrary sovereign policy, the French example shows on the contrary the ability of senior civil servants to play with this boundary and, in blurring the duality, to leverage the resulting confusion.

64The characteristics of the AFT, which uniquely associated insertion in the state administration with “representation” of French economic policy on the markets, was apparent during promotional “road shows” for French bond products. Seminars presenting French sovereign debt to investors, co-organized with primary dealer banks and partners of the state in debt distribution, were opportunities for the hybrid nature of the agency to be mobilized as a way of seducing investors and differentiating it from the competition. During these road shows, senior civil servants presented France’s financial policies to market professionals and responded to their questions and concerns, which might range from a precise request about a product to a question about the general political situation in the country, the way in which it was introducing a reform or tackling a social movement, a rise in terrorism, the progression of the extreme right, or any kind of political radicalism. Treasury staff took advantage of the agency’s integration within the ministry to sell investors a package of information that went beyond simple debt instrument products, and included the sustainable trajectory of the budget, the job market environment, a tax regime which was profitable for investors and creditors, and the ability to contain inflation. These were the features of France as an “economic fact and social whole” that were expected by investors and which would improve the credit-rating of the French state. [78] With the semi-autonomous agency, as a former AFT agent explains, it became possible to represent and to sell France as a whole, by offering investors expertise on all public policies (e.g. debt, budgets and economic and financial strategies), while the Germany agency, isolated from its ministry, had to confine itself to discussing the range of debt products:

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“In Germany, the debt management agency was a limited company in Frankfurt, while the ministry was in Berlin. That’s two hours away by plane, a good distance. The AFT always benefited from a kind of political credit that the Germany agency, made up only of technical experts, didn’t have. I took part in road shows with the head of the German agency, and it was a rather amusing experience. In Asia, the Asian investors would ask: ‘Is the European stability pact working or not?’ They would ask political questions. And the head of the German agency would say: ‘I cannot answer that. My job is to manage the debt. I do not respond to political questions. I have nothing to say. I cannot even comment on the state of the German economy, since that is not my job.’ But I was also a Treasury civil servant, with access to all our briefings on the economic situation. As you can imagine many arguments were advanced, more or less in good faith, to show that everything was going well, since these arguments had to be made for the minister and for the government anyway. So I was comfortable in responding: ‘These are the reforms happening in France. This is the state of our public finances.’ And that gave the agency a more political hue, which interested people and made them want to talk to us because they saw us as a route into the French government. And that was an advantage.”

66Treasury officials, warned by the banks of the concerns of investors, were thus in a position to reassure them and to deploy their political credit. They wanted their presentations to demonstrate that public policies were moving in the direction expected by the markets:

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“If a particular group of investors was worried about a particular aspect of economic policy, we had to find technical aspects that would nonetheless reassure them. I used to walk around with a graph that showed the number of strike days in days/people per month, on a twenty-year timeline. I had this graph with me going back to the 1970s. It worked quite well, I could show that the social climate wasn’t all that bad, and above all that it was better than before, compared to the major strikes we had in the 1980s.”

68The proximity of the Treasury to the ministry and state administration sheds light on the way in which the logic of financial markets, to which debt managers were sensitive, was introduced into the heart of politics and the procedures of public service in order to reform this latter along the lines of the globalized commerce of sovereign debt. Since it was understood that the state must secure the best financing and safeguard its credit, Treasury officials could re-emphasize that they were best placed to be guardians of the temple and of long-term financial health within the public administration. Strengthened by this position at the bridgehead of the markets, within the administration they became the self-appointed advocates of the behaviors expected by the state’s creditors.

TPolicing administrative behaviors

69By appropriating the agency norm, senior Treasury officials hoped also to maintain, perhaps even reinforce, their position within the state administration and their relationships with political representatives. The Treasury department preserved the connection between the issuance of debt products and the management of the central Treasury: “Treasury correspondents”, local collectives, and public establishments were obliged to deposit their liquid assets with the AFT. [79] Through a strategy of associating and distancing themselves from the Ministry of Finance as it suited them, senior civil servants reconstructed an administrative policy that played with the boundary between financial affairs and the main features of sovereign power. By representing France in global financial centers, they presented and formalized the assets of the debt issuer and sold “virtuous” budgetary, financial, and monetary decisions that met the needs of capital market professionals. This representation of France on the markets, in turn, conferred important powers on the Treasury with political authorities and other sectors of the public administration alike. Through their contributions to meetings and, simultaneously, through their actions within the state administration, Treasury officials aimed to preserve, maintain and improve the state’s credit. Financial and political credit were seen as one and the same. The result was that the AFT behaved like the financial director of a business with political authorities and the “spendthrift” ministries. Sylvain de Forges thus conceives of the Treasury as an “observation point over the entire immense social body”, and above all a tool through which the entire public administration was held on a leash.

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“A Treasury official is always within their rights to say: ‘Wait, I don’t understand, you spent that money, can you explain why? And why did you spend it today? I’d have preferred it if you’d spent it in a week’s time.’ This tool [the Treasury] is really the end of the dog’s tail. If you’re holding the dog there, it can’t walk away, you really have a hold on it! Your ability to monitor the functioning of the state administration has no known limit. And that’s exactly why, for my part at any rate, I insisted that we should not create an agency. Because creating a debt management office would have meant cutting it off from the inside of the state.’

71Treasury officials marked out the space of “good” financial and budgetary choices, which were none other than those that least disturbed the financial management of the state. The retention of the agency within the state administration worked as a tool of budgetary discipline. By remaining visible and located within the walls of the government, the agency was a material representation of the constraints of financing; externalizing it would have been tantamount to disembodying it. The balance of the French agency format is a pedagogic vehicle: the presence of the AFT is a permanent reminder of the need to put everything into maintaining the state’s credit so as to ensure the continuity of the public administration. The IA, prescribing the norm, had anticipated the importance of the agency model in communicating the message of financial constraint to other state bodies responsible for “spendthrift” public policies.

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“Debt managers should ensure that the fiscal authorities are aware of the impact of government financing requirements and debt levels on borrowing costs. Examples of indicators that address the issue of debt sustainability include the public sector debt service ratio, and ratios of public debt to GDP and to tax revenue.” [80]

73According to the logic of the model, although some marketed public debt is required, it must be controlled and kept sustainable so that a major crisis situation does not lead to the brutal return of politics via a default, cancelation, or restructuring of the debt. The organizational compromise which created the agency stabilized the schemes of action for public finances: issuing debt in line with market expectations, shorn of extraordinary privileges – such as the linking of the treasury to monetary and banking regulation, seen as a distortion of the market – and limiting, if not the deficit, at least public spending. This structure and the financial securities it created underpins a particular analytical approach to public finances. Acting as an interface between government policy and market expectations, this structure converted its position – at the heart of the state where it “represents” the French economy as a whole – into a strategy for investors. Conversely, within the state, the AFT turned itself into the established voice of the investor community, petitioning the minister for decisions that would be favorable in maintaining its political credit and its link with the capital markets.

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75Revitalized by the French administration, the agency norm objectifies an institutional arrangement that connects the international financial community, political representatives, and public administration in a unique framework. In France, ministers supported financial innovation and the creation of an agency, which was itself appreciated and welcomed by the markets, along with the development of the financial center of Paris in the competitive interest of France. The key positions in this state department, which remains within the circles of sovereign power, are held by senior civil servants looking to reconcile the requirements of the banks and market operators, considered as partners, with the interest of the citizen-taxpayer in reducing the burden of debt as far as is possible within the accepted market framework.

76Alignment with market interests therefore varies with the form of the organization and the national arrangement. In France, departments routinely act autonomously, but under the supervision and the responsibility of the ministry. The authorities take advantage of the minimal conformity to international administrative norms in order to reduce their borrowing costs and debt burden, and thus meet the needs of public service. Far from marking the end of the state’s power, the administrative organizational framework engendered by the comparison and competition between states for financing on capital markets has directed the knowledge and skills of senior civil servants toward new strategic areas. Serving the public interest consists of developing financial innovation, wielding influence in a reorganized international universe, and ensuring low interest rates on state loans. [81] Herein lies the ambiguity of this new form of strategic state, which is considered to be even more strategic because it adapts to the interests and expectations of private financial participants. [82]

77The agency is not therefore a neutral format, or a simple technical response by sophisticated experts to a complex problem – international financing on the capital markets. The fact that senior civil servants went along with marketization, albeit according to a specifically French logic, in turn ratifies and reinforces the international framework. While the agency format does not signify the seizure of the state by the markets, nor does it leave the state or the legitimate definition of public interest intact. A shop window for investors and the source of cheap financing – constrained by a market that is taken as given – the AFT coerces the administration in return. On the markets, its name sets the tone for good policy, which conforms to financial orthodoxy and the defense of debt quality: weak inflation, and an attractive financial center that does not obstruct international investment through its regulations or tax regime. As a point of contact for the markets and a facilitator of their aspirations, the AFT embodies financing constraints within the administration and perpetuates the injunction for budgetary discipline. [83]

78The AFT thus goes a step further by taking into account the expectations of capital markets in order to formulate economic policy strategies. The agency proposes not depoliticization but the reconfiguration of politics: a reconfiguration of voluntarism – going further in supporting the infrastructure of market finance – but also of the rationality of the state, which seeks to optimize the performance of its products in the manner of a calculating agent in competition with other debt issuers. [84] The interest of the citizen, defined essentially as a “taxpayer”, is represented and “appropriated” by senior civil servants whose profile, identity, and mission persona are a hybrid of public service culture and the demands of the financial community. [85] This administrative commitment to the rationality of the state marks the current peak of ongoing efforts to align at a national and international level the interests of administrative organizations and private organizations on the financial markets. [86]