French borrowing costs fall to record low despite crisis

Borrowing costs for France fell to a record low level early on Monday despite the resignation of the government, which plunged the country into a political crisis on top of depressed economic activity. But analysts said the main factor was not increased risk from the political situation in France, which could be expected to push interest rates up, but a promise by the European Central Bank to ensure that deflation does not take hold in the eurozone. That implied a possible injection of central bank funds. The interest or yield indicated by 10-year bonds already issued and traded on the secondary market fell to 1.325 per cent, although it edged back up later to 1.329 per cent. Socialist President Francois Hollande ordered his Prime Minister Manuel Valls to form a new government after Economy Minister Arnaud Montebourg attacked government policy at the weekend for being orientated towards reducing the public budget deficit. However the main factor affecting financial markets in Europe on Monday was a promise by the head of the European Central Bank, Mario Draghi, to do everything necessary to ward of any threat of deflation, according to AFP.