This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 PARIS 002721 
 
SIPDIS 
 
PASS FEDERAL RESERVE 
PASS CEA 
STATE FOR EB and EUR/WE 
TREASURY FOR DO/IM 
TREASURY ALSO FOR DO/IMB AND DO/E WDINKELACKER 
USDOC FOR 4212/MAC/EUR/OEURA 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PGOV FR
SUBJECT:  FRANCE ENCOURAGES A NEW FINANCIAL CULTURE 
 
¶1. SUMMARY.  The GOF is taking steps to cultivate a stronger 
financial culture in France.  Even though the number of 
individual shareholders has dramatically increased in the 
last twenty years, the French currently lack enough 
knowledge of financial markets to invest in equities or 
other sophisticated assets.  The government wants to 
encourage financial investments, notably regular holdings of 
equities.  Developing a more sophisticated financial culture 
will take time, but may help finance the economy (notably 
public debt, pensions, and companies), and also prepare the 
ground for further liberalization of the economy.  END 
SUMMARY. 
 
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GOF's Plans to Deepen Financial Culture and Awareness 
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¶2.  The number of individual French shareholders 
participating directly in the equities markets has 
dramatically increased over the last twenty years, from 1.7 
million in 1982 to about 7 million in 2005.  Investing 
accelerated when the government launched its first 
privatization program in 1986.  Since then, the French have 
diversified their portfolios as new financial products were 
proposed.  The government expects financial markets to 
expand further in the future, notably because of the 2003 
pension reform, which should increase household demand for 
financial assets.  This would favor economic growth and 
employment, if households make responsible decisions and 
exploit information provided by financial institutions and 
market authorities.  In a recent speech before parliamentary 
deputies on insurance issues, Finance Minister Thierry 
Breton stressed that efforts must be concentrated on 
individuals' information and education.  Breton stated, "The 
objective is to provide savers a reference system to help 
them ask the right questions, given their objectives and 
their financial situations."  Breton gave his full support 
to the recommendation of a working group for the AMF 
("Autorites des Marches Financiers," the SEC counterpart) to 
create a financial training institute.  He also commissioned 
AMF's member Jacques Delmas-Marsalet to examine solutions to 
enhance the consistency of marketing intelligence, including 
transparent information on fees and responsibilities of 
managers and distributors of financial products.  Delmas- 
Marsalet has until September 2005 to prepare his report. 
 
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AMF Recommends Creating a Financial Training Institute 
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¶3.  Since June 2004, AMF has been mulling over ways to 
develop neutral financial information and educate the French 
public on investment opportunities.  The AMF's working 
group, headed by Jean-Claude Mothie and Claire Favre, 
recently completed its draft report.  The AMF group's main 
recommendation is to create a financial training institute, 
"a light structure to federate and introduce existing 
training initiatives through mass communication, and 
organize partnerships between units already providing 
financial training."  The institute should adapt information 
and training to specific requests. 
 
¶4.  AMF favors providing the institute the legal status of 
association (versus foundation), proposing to combine 
activities of a school, the Euronext-sponsored "Ecole de 
Bourse" and that of the National Association of French 
Holders of Stocks ("Association Nationale des Porteurs de 
Valeurs Mobilieres - ANPVFM"), which both created the "Ecole 
de Bourse" in 1997.  The school already offers training in 
50 French cities, and manages and updates a web site. 
Regarding governance, the AMF wishes to have an "eminent 
position" in the new institute, and the Finance Minister to 
have "significant involvement."  The AMF desires the 
participation of private and state-owned institutions, 
finance specialists, consumers and savers associations, and 
investment clubs.  The new institute could be funded by the 
central government budget or by a portion of AMF's 
resources.  If the budget solution is selected, AMF hopes 
for provisions to be included in the 2006 budget to get the 
new institute operational as soon as 2006. 
 
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The French Public Lacks Expertise in Financial Markets 
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¶5.  AMF commissioned the TNT Sofres institute to conduct a 
poll about individuals' financial awareness including 
knowledge, information sources and expectations.  Based on 
the poll, 3 French out of 4 admitted they did not have 
sufficient knowledge of financial markets.  They deemed 
financial products as too sophisticated, and reserved for 
experts.  A large majority confessed they have difficulty 
reading the financial press or booklets describing financial 
products, complaining that the presentation is too legal, 
and not understandable.  This makes it hard to select and 
invest in appropriate financial products or services, as 
well as to assess the profitability of an investment.  For 
these reasons, the French largely follow the advice of their 
bankers (which would in part explain the popularity of 
regular bank savings accounts).  A minority of the populace 
consults consumers' associations, academics or specialized 
web sites.  A majority favors financial training.  Around 
80% suggested that financial courses should be given in high 
schools. 
 
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Shareholders are Still Cautious 
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¶6.  Based on another TNS Sofres' survey commissioned by the 
Bank of France and Euronext, 11.2 million French held stocks 
in 2004, compared with 10.2 million in 2003, accounting for 
25 percent of adult population (compared with 20% in 2000 
and 22.6% in 2003).  The increase is mainly due to the 
development of corporate savings plans ("Plans d'Epargne 
Entreprise - PEE.")  PEE's are invested in mutual funds 
composed of French equities ("Fonds Commun de Placement en 
Entreprise - FCPE"). 
 
¶7.  The number of bondholders (1.3 million) has continued to 
decrease in the last ten years as individuals have invested 
in equities and/or long-term insurance savings contracts: 
 
-- Individual shareholders (6.7 million, down from 7.2 
million in 2003) have not totally recovered from the 2002- 
2003 50% drop in equity prices, and have been discouraged by 
a slow recovery in the equity market in 2004 and early 2005. 
According to specialists, most shareholders invest for the 
long term, selecting equities of companies expanding either 
in France or abroad, but with a strong preference for 
European equities.  French finance sector employees have a 
different approach, frequently buying and selling stocks, 
and frequently speculating in the hope of short-term gains. 
 
-- In 2004, around 11 million French people held insurance 
savings contracts.  Insurance savings contracts became 
highly popular because of considerable advantages (e.g., no 
capital gains tax if the holder maintains his or her 
investment for 8 years; tax-free transmission to heirs). 
The GOF provided these advantages to insurance savings 
contracts in the early 1980s, and again in the early 1990s, 
since the government had to find funds from capital markets 
to finance a spiraling government debt. 
 
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IRA-like Accounts PERPs a Year After:  Success is Limited 
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¶8.  As part of the 2003 pension reform, the government 
created IRA-like accounts ("Plan d'Epargne Retraite 
Populaire - PERP") in 2004.  Advantages are smaller compared 
with insurance-savings contracts (e.g., a portion of the 
investment is deducted from annual taxable incomes; incomes 
are paid at retirement age, and are subject to annual income 
taxes).  About 1.4 million PERPs have been opened (worth 620 
million euros).  The success is limited compared with the 
target of attracting 9.2 million private-sector employees to 
reduce government funding of pensions by 18 billion euros by 
¶2020.  Nonetheless, banks and insurance companies are not 
yet worried.  According to bankers, the number of PERP 
holders will increase to 2.5 million in 2005. 
 
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The GOF Wants to Encourage Regular Holdings of Equities 
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¶9.  Prime Minister Raffarin commissioned the Economic 
Analysis Council ("Conseil d'Analyse Economique") to study a 
new version of the "Plan d'Epargne en Actions - PEA" created 
by former socialist Prime Minister Pierre Beregovoy in 1992. 
The idea of the new PEA would be to allow investors to save 
for retirement, and to encourage the French to buy equities. 
Based on preliminary information, collected funds would be 
invested in equities in the proportion of 50-60%, but also 
in bonds to make the investment safer and to reduce its 
volatility.  The duration of the new PEA investment would be 
longer, 10 or 15 years versus 5 years for the PEA. 
Advantages compared with regular PEAs would be to provide 
tax exemptions on interests and capital gains to non-income 
taxpayers, and increased tax deduction to income taxpayers. 
 
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Comment 
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¶10.  The Government's objective is to encourage the French 
to increase their financial investment rate (6.3% of 
disposable income), not to increase the savings rate, which 
is one of the highest in industrialized countries (15.4% of 
disposable income).  The Government has a strong interest in 
developing the financial culture in France to continue to 
fund the public debt, to develop French-style pension funds, 
and to re-orientate a portion of savings towards "active" 
savings in favor of companies, notably toward small-and- 
medium sized companies, which cannot be created or survive 
without capital.  Improving the financial culture may take 
years, but is necessary to help the government finance the 
economy, and prepare the French to further liberalization of 
the economy. 
WOLFF