Sapin II: do you know what the State does with your savings?
If you have ever been interested in investment and the different possibilities of financial investment, you must have heard about Sapin II. Indeed, this law aims to protect your savings (especially in the context of life insurance). However, some clauses of this law actually promote the possibility to limit its use in given contexts. Indeed, the money stored in the life insurance of the French is used by the State, through the sovereign debt. Now, what could happen if, in a context of rapid and continuous rise of the interest rates, you decide to withdraw your money? That's what we'll look at in this article.
Read more: The sovereign debt crisis in the Eurozone
The state finances its current economic policy through borrowing and debt
It is no longer a secret that the State finances its public policies with debt. The consequence is a rise in public debt, reaching 2,956.8 billion euros in December 2022. France is therefore, in the second quarter of 2022, indebted to 147.2% of its GDP, compared to 116.2% at the end of 2021. It is therefore clear that the health crisis, coupled with inflation and rising energy prices, has significantly increased the public debt.
Many people are now raising the question of sovereign debt cancellation. Why can't France simply cancel the amount of its debt? Let's remember that cancelling the public debt would mean destroying the ECB and "cancelling" its power to supervise the public finances of its members. This would make the euro volatile and lose its value. It is therefore preferable to reflect on the savings drained by the financial markets and the purchasing power of households.
Households appear to be the key to the economic recovery needed to repay France's sovereign debt. It is in this context that the appearance of Sapin II casts a shadow on French savings. Indeed, French people have particularly saved during the year 2020 (for lack of holidays and any type of activities) which makes their savings a real source of borrowing for the State.
Read more: Public debt: a solution or a problem?
Sapin II: fight against corruption or arbitration of life insurance?
Sapin I is a "law on the prevention of corruption and the transparency of economic life and public procedures". 25 years after its implementation, Sapin II was used to add a component of modernization of economic life. In particular, this law adds a clause that specifies that the High Council for Financial Stability (HCSF) can now "prevent risks representing a serious and characterized threat to the financial situation of all or a significant subset of these persons or to the stability of the financial system". This involves the following measures:
(a) Temporarily limiting the exercise of certain operations or activities, including the acceptance of premiums or payments
b) Temporarily restricting the free disposal of all or part of the assets
c) Temporarily limit the payment of surrender values for all or part of the portfolio
d) Temporarily delay or limit, for all or part of the portfolio, the power to make arbitrations or pay policy loans
e) Temporarily limit the distribution of a dividend to shareholders, a return on mutual or parity certificates or a return on shares to members
This temporary limit may be renewed once, for 3 months, for a total duration of 6 months. In other words, this means that the HCSF can, under given conditions, interfere with savings management operations. For households, this means that their life insurance could suffer. Indeed, it is important to note that the total amount of life insurance savings of the French amounts to more than 1,750 billion euros. It is therefore becoming a source of borrowing for the public authorities.
Given the current context, will the State tackle life insurance?
The current economic situation seems to meet all the required conditions for the interference of the HCSF. To reassure all savers, the HCSF has expressed itself through a press release. It specifies that Sapin II clauses were mainly made in case of a financial crisis. However, the crisis we are currently experiencing is more of an economic and social crisis.
However, the HCSF recalls in conclusion that it "stands ready to take any measure within its remit and necessary to ensure financial stability, in coordination with national and European supervisors and authorities". Moreover, the HCSF recommends "a responsible attitude regarding the distribution of dividends and the payment of variable remuneration", which is very reminiscent of one of the clauses of Sapin II.
How to react to avoid being affected by this law?
Despite the low risk that the clause on life insurance savings will actually be applied, the most worried French savers may still see it as a constraint. Indeed, some asset managers go so far as to recommend Luxembourg life insurance where interest rates are higher than in France and where the security of savings is guaranteed.
Another possibility is to choose a Luxembourg life insurance. However, this must be done in unit of account (UC), which means that your money is invested in more risky shares than a fund in euros, such as UCITS for example. Your capital is therefore not guaranteed.
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