PARIS (Reuters) - French savers are squirreling away their spare cash at the fastest rate in nearly 30 years, putting a drag on consumer spending in the euro zone's second-biggest economy while helping its banks' balance-sheets.
Even in the best of times France is among the most thrifty nations in the developed world, but the threat of Europe's debt crisis spreading to France has savers running for the perceived safety of bank accounts and becoming more wary of life insurance policies exposed to volatile markets.
"Luckily it's not going under mattresses, it's still going into bank accounts, thank God. But this is the first phase of a liquidity crisis," said Cyril Blesson, a savings economist at consultancy Pair Conseil.
"People are preferring to put their money into cash or even non-interest bearing accounts while there is also a lot of money going into tax-free and taxable savings accounts."
France's economy, which many economists estimate to be in recession, is far more dependent on consumer demand to underpin its growth than its northern neighbor Germany, which can count on surging exports for its strength.
With unemployment claims at a 12-year high, French households are preparing for a rainy day despite a generous social safety system to provide for them when they retire or lose their jobs.
French savers have been piling into French banks just as professional investors have been pulling money out of their stocks on concerns about their exposure to troubled euro sovereign debtors and their reliance on wholesale funding
In case of bankruptcy, bank deposits are guaranteed in France up to 100,000 euros by an industry body while life insurance policies are guaranteed up to 70,000 euros
The household savings rate shot up during the 2008-09 financial crisis and is running at about 17 percent, the highest level since early 1983, according to Thomson Reuters Datastream.
Consumer spending has meanwhile been languishing, falling in November at the fastest 12-month rate since February 2009, which marked the trough of the 2008-2009 financial crisis.
However, with household indebtness among the lowest in Europe, Societe Generale's chief economist for France, Michel Martinez, said there was scope for French savers to ease their savings from current highs.
"Everything suggests that they will lower their savings rate which would support spending," he said.
But complicating the picture, President Nicolas Sarkozy's conservative government has committed to pushing through a sales tax increase to finance companies' welfare contributions, which risks further dampening spending and offsetting any positive impact from lower savings.
At least the high savings rate is proving to be a boon for France's beleaguered banks, with surging deposits helping to ease the pressure of funding themselves on clogged interbank markets while helping to meet new Basel III capital adequacy ratios.
With interbank market rates at the highest levels since the 2008-2009 financial crisis, French banks have been borrowing heavily from the European Central Bank, accounting for about 27 percent of total ECB loans to banks, according to the balance sheets of the Bank of France and the ECB.
With inflows of deposits helping to reduce French banks' reliance on markets and the ECB, they are aggressively marketing tax-free and taxable savings accounts, steering their money away from life-insurance products, which traditionally have been the most popular form of savings in France.
"In their retail networks, their sales arguments have a significant impact on the way the French save," Gildas Robert, an actuary and senior manager at consultancy Optimind.
The rate of growth in deposits in Livret A savings accounts, which are tax free and have a state-regulated interest rate of 2.25 percent, accelerated in September to 11 percent over 12 months, according to Bank of France data.
While that is nearly twice the 6 percent average rate of the last 10 years, it is a far cry from the 30 percent seen in March 2009, during the darkest days of the 2008-09 financial crisis.
Net flows into life insurance products fell for a third straight month in November, hitting a negative 3.2 billion euros, according to figures from the French Federation of Insurance Companies (FFSA).
Such outflows from France's favorite savings product are rare and the rate of decline in November was on par with that seen just after Lehman Brothers went bankrupt in 2008 and savers buckled down for the worst.
Despite these recent outflows, the life insurance industry recorded net inflows of 14.4 billion euros in the first 11 months of 2011.
"In the current environment, savers are more hesitant than in normal times to make long-term investments," said Philippe de Villeneuve, head of the FFSA's life insurance committee.
"The banks clearly need resources. They push short-term products with interest rates set in advance, which is having the result that the French are more attracted by this sort of investment than in the past," said de Villeneuve, also deputy chief executive of BNP Paribas Cardif, the French bank's insurance arm.
Editing by Ruth Pitchford