France, struggling to reform its economy and deal with a huge debt and big public deficit, is borrowing money at record low rates, even though the country was hit with two humiliating credit downgrades last year. Borrowing conditions are so good that the government saved 2.4 billion euros ($3.3 billion) in interest payments last year compared to the debt-servicing bill it had expected. Two of the three main credit rating agencies which categorise government debt bonds by class of risk, and therefore indirectly by category of interest rate, downgraded French debt from the top-notch \"AAA\" rating last year. One implication of a downgrade is that some investors and funds, if their contracts with savers state that money must be invested only in top-rated instruments, can no longer hold or buy the downgraded AAA bond. Even though France is fighting to reduce its public deficit, it is still running a deficit and increasing its debt, but at far lower interest rates than those which, in the case of Italy for example, suddenly surged and put the country at risk of being unable to borrow. \"These ratings unnerve many people, but in general they don\'t really shock the markets, they\'re rather ratifying the dominant thought among investors,\" remarked Charles Wyplosz, an economics professor at the Graduate Institute of International and Development Studies in Geneva. Standard and Poor\'s (S&P) became the first of the three main world rating agencies to downgrade France, taking it down a notch to AA+ on January 13, 2012. Coming in the midst of a presidential election campaign, the news added to controversy since the financial crisis began in the United States about the role and influence of the rating agencies. The then French president, conservative Nicolas Sarkozy, who eventually lost the election, said before the downgrade that retaining the top-notch notation was \"an objective and obligation\". His socialist opponent, Francois Hollande who is now president, argued after the downgrade that the decision by S&P meant that Sarkozy\'s right-wing politics had also been \"degraded\". But then Hollande, as president, had to manage a downgrade, this time by Moody\'s, which followed in S&P\'s steps on November 19 and took France down a notch. The agency Fitch is the only remaining leading institute to grace France with an AAA rating but it is considering a downgrade this year. But with two downgrades so far, France cannot claim to be a member of the increasingly exclusive club of countries with three \"triple A\" ratings, in contrast to its main trading partner and twin pillar in the European Union, Germany. A \"triple A\" rating is the highest credit rating available and is seen as a stamp of approval of low risk for the countries issuing the bonds. \"Normalisation\" --------------- A downgraded rating should mean therefore that the risk associated with the debt concerned has risen and the interest the country has to pay should rise accordingly. But statistics are telling a different story. On January 13, 2012, the interest rate, or yield, on 10-year French bonds was 3.075 percent. A year later, on January 3 in 2013, the rate was at a record low level of 2.07 percent. In addition, the spread, or difference in the yield, between the French rate and the rate on 10-year German bonds, the benchmark for the eurozone sovereign debt market, has contracted significantly. In the past 12 months, the spread has halved from 130 basis points (1.3 percentage points) to slightly more than 60 points today. \"The spread was certainly excessive\" before S&P\'s downgrade, said Cyril Regnat, a bond market specialist at Natixis bank, who said that this had reflected \"speculative attacks\" against France. He said that the fall of French bond yields amounted to a form of \"normalisation\" of trading conditions, and was also the consequence of a search by investors for a return on low-risk bonds. \"German bonds are of course a sure bet, but they\'re not at all profitable (in terms of yield), so the French bonds offer a bit more return,\" he explained. \"If the French yields have fallen it\'s also due to the fact that French bonds have benefited from the panic that has spread across Italy and Spain,\" Wyplosz added, referring to a so-called flight of funds from high-risk to low-risk sovereign debt. The overall consequence is that France is able to borrow at unexpectedly low rates and in doing so has had to pay far less than expected in interest. The cost of interest on the debt, now about the biggest item in the central government\'s budget, amounted to about 46.4 billion euros in 2012. That compares for example to the annual amount raised by income tax which totals 59.0 billion euros. The final cost of debt interest for 2012 is now expected to be 2.4 billion euros less than forecast. A vital question on the debt market and for the government is whether or not these low rates can be maintained, and that, analysts concur, depends largely on the signals France sends about its ability to reform the economy, raise its competitive position and growth rate, and correct public finances.