CADES Info no. 15 (February 2006)

EDITORIAL

Since it was established by government order on January 24, 1996, CADES has amortized 29 billion euros of the 110.4 billion euros that has been entrusted to it by a series of laws aimed at social security reform.
Clearly, CADES is a mechanism that works. The fact that French legislators allocated an exclusive and dedicated resource to CADES—the CRDS (Contribution au Remboursement de la Dette Sociale )—has helped it gain legitimacy in the financial markets. For ten years now, the French have devoted one half of a percent of their income to paying interest on and amortizing their social security debt.
Thanks to both its resources and its status as a public agency—marking a high degree of proximity to the French State —CADES stands among Europe ’s best financial agencies. Over the last decade, CADES has amply demonstrated its ability to use a broad range of financial instruments, in euro and foreign currencies.CADES is jointly supervised by two ministries, as well as by the French Parliament, which has four representatives on the CADES supervisory board.
CADES seeks to amortize the debt as rapidly as possible, at the lowest possible cost and risk exposure level. Its annual amortization target is now subject to a vote within the Social Security Financing Act. Extended from 2009 to 2014, the lifespan of CADES is now tied to the achievement of its debt amortization mission. The Organic Act of 2004 provides that any expansion of this mission must be accompanied by a concomitant rise in tax resources.
To this end, CADES is developing its own asset liability matching model to assess the debt amortization profiles for various risk levels. With efficiency and transparency as core values, CADES is pursuing a clear financing program, adapted to its needs, and a steady flow of communications to investors.

• CADES and the CRDS are established effective January 1, 1996; debt of 46.2 billion euros is assumed – Government Order dated January 24, 1996

• An additional 13.2 billion euros of debt is assumed; the lifespan of CADES is extended from 2009 to 2014 – Social Security Financing Act of 1998, dated December 19, 1997.

• Non taxable retirees and unemployed workers are exempted; payment to the government is modified to partially offset the impact of this measure – Financing Act of 2001, dated December 30, 2000.

• Payment to the government is stepped up (and offset), raised to 3 billion euros per annum through 2005 (instead of 2008) – Financing Act of 2002, dated December 29, 2001.

• A non-offset payment of 1.3 billion euros in respect of the Forec – Social Security Financing Act of 2003, dated December 20, 2002.

• A non-offset payment of 1.1 billion euros in respect of the Forec – Social Security Financing Act of 2004, dated December 18, 2003.

• The debt is increased by 50 billion euros, the end date is eliminated, and the taxable base for CRDS is enlarged (from 95 to 97% of the gross wage) – Act of August 13, 2004. The assumed debt was 35 billion euros in 2004, 6.6 billion euros in 2005, and an estimated 6.7 billion euros in 2006.

• All subsequent transfers of debt to CADES must be accompanied by a concomitant rise in tax revenue – Social Security Organic Act of 2005.

• Legislation is passed allowing life insurance policies stated in euros to be transformed into unit-linked contracts, with possible impact on social taxes collected - Act 2005-842.

• CADES is assigned an annual amortization target; home savings contracts in force for more than 10 years become subject to social taxation – Social Security Financing Act of 2006, dated December 19, 2005.

• The government order of 1996 is modified to authorize the finance minister to issue on behalf of CADES pending enactment of a decree that specifies the technical conditions of application – Financing Act of 2006, dated December 30, 2005.