Trichet urges people to purchase and consume

FRANCE: When the European Central Bank (ECB) cut its interest rates to 2 per cent, the French prime minister Mr Jean-Pierre Raffarin welcomed the measure as "going in the right direction".

Mr Jean-Claude Trichet, the governor of the Banque de France, who may succeed Mr Wim Duisenberg in Frankfurt, wrote an opinion piece in Le Monde urging the French to borrow. "You can have confidence. We are lowering rates in a significant way because we are convinced that prices will remain stable. Your purchasing power will be preserved; you can consume."

Interest rates would drop across Europe and in France, Mr Trichet promised.

But though they are engaged in tough competition, French banks have adopted a lackadaisical attitude to passing the ECB's rate cut on to clients.

This is surprising since banks rely on low-interest property loans to entice new customers, knowing they will then make money on fees for safe deposit boxes, current accounts and bank cards.

In a society where the customer is always wrong, where there is no sense of consumer militancy, there has been no vocal demand from would-be borrowers, politicians or financial columnists. "I'm not sure if people are really aware of the ECB rate cut," said Mr Bertrand Hugonet of Crédit Lyonnais.

Several bankers said rates would continue to go down, but thought it could take a month or more before the ECB decision was reflected in their own lending policies.

Crédit Lyonnais revised its rates on June 2nd, apparently in anticipation of the June 5th ECB decision.

But it is not lending money at anywhere near the ECB rate of 2 per cent. A property loan at Crédit Lyonnais for seven to 10 years costs 3.85 per cent interest; rising to 4.05 per cent for loans of 10-15 years in duration, and up to 4.45 per cent for periods of 15-20 years. But these rates can be misleading. The amount borrowed and the percentage represented by the client's down payment are key variables. And "hidden" insurance fees raise the de facto interest rate considerably.

Société Générale has not revised its interest rates since March, but expects them to fall within the next month. A fixed-rate property loan for 10 years currently costs 4.55 per cent at 'SocGen'; a 15-year loan 4.65 per cent; a 20-year loan 5.20 per cent.

But bank managers sometimes negotiate special rates for preferred clients. By contrast, a normal savings account at SocGen now pays 2.5 per cent interest.

For the unfortunate clients who borrowed when rates were high, there is no relief yet. Société Générale refuses to refinance loans made at higher interest rates, although clients can in theory do so if they are willing to add a 1.2 percentage point penalty to new, lower rates.

The bank's management is currently reviewing the policy. If, as Mr Duisenberg has predicted, ECB rates fall again, SocGen says it may consider refinancing old property loans in the autumn.