Frankrijk moet maatregelen nemen om begrotingstekort in 2004 te verhelpen (en)

The Commission adopted today a recommendation for the Council to request France, in accordance with Article 104(9) of the EC Treaty, to take new measures to reduce the budget deficit and remedy the situation of excessive deficit. The Commission considers that the budgetary adjustment in 2004 should be larger than the one contained in the draft Budget for 2004. Specifically, it is recommended to reduce the cyclically-adjusted deficit by one percentage point of GDP in 2004, which implies additional deficit reduction measures of around 0.4 % of GDP. Through such action, the French government should put an end to the present excessive deficit situation as rapidly as possible and by 2005 at the latest. When drawing up the measures to be taken in order to comply with these recommendations, France should take into account the recommendations issued by the Council in the framework of the 2003-2005 Broad Economic Policy Guidelines¹. The need to curb the dynamics of spending in the health sector is explicitly included in the Guidelines. Overall, budgetary consolidation measures should secure a lasting improvement in the general government balance. They should be geared towards an enhancement of the quality of public finances and a reinforcement of the growth potential of the economy. Today's decision follows the Commission recommendation to the Council under Article 108(8) two weeks ago (IP/03/1353) establishing that France took no effective action in response to the Council's recommendations last June.

When presenting the budgetary plans for 2004, the French authorities projected a decline in the general government deficit from 4.0% of GDP in 2003 to 3.6% of GDP in 2004 and to 2.9% in 2005, under the assumption of an increase in real GDP by 0.5% in 2003 and 1.7% in 2004. Most of the reduction in the deficit between 2003 and 2004 would be achieved through restraint in general government expenditure growth. Discretionary measures on the revenue side would - on a net basis - reduce the general government deficit by 0.1 percentage point of GDP. As far as the years after 2005 are concerned, the French multi-annual projection for government finances projects a reduction in the general government deficit to 2.2% in 2006 and 1.5% in 2007, under the most plausible macroeconomic scenario of real GDP growth at 2.5% in 2006 and 2007.

In June, when issuing its recommendation according to Article 104(7), the Council had set the deadline of 2004 for the correction of the excessive deficit of France. When defining the new recommendations issued under Article 104(9), the Commission has taken the following factors into account:

The worsening in the economic situation in 2003, which contributed to the deterioration of the budgetary situation, was abrupt and unexpected. According to the Commission calculations, the cumulated loss of real GDP growth over the period 2003-2004 amounts to about 1.5 percentage points compared to what was expected in the Spring forecast.

The deterioration of cyclical conditions has made the effort needed to bring the deficit below 3% of GDP in 2004 significantly larger than envisaged last June. To obtain such an outcome in 2004 would require a reduction in the cyclically adjusted balance of about 1.5% of GDP. Even if budgetary consolidation is not necessarily harmful for growth, such a large effort may prove economically costly if undertaken in a single year, in particular given the downward revision in growth prospects.

The budgetary plans for 2004 submitted to Parliament in September are targeted at a reduction in the cyclically-adjusted deficit slightly larger than the minimum amount of 0.5 percentage point of GDP recommended by the Council in June.

The increase in the general government deficit in France in the recent years is a matter of serious concern. If not corrected, it will lead to a continuous and large increase in the debt to GDP ratio, which may in turn weigh on economic agents' expectations and be damaging for growth. Moreover, the impact of the ageing population on public finances will start accelerating from 2005-2006, making it even more urgent to reduce rapidly the general government deficit and debt.

Against this background, the Commission proposes the following recommendations to the Council:

The French authorities shall achieve in 2004 an improvement in the cyclically-adjusted balance of one percentage point of GDP. This would allow to catch up in 2004 for the lack of adjustment in 2003 and to set a credible basis for bringing the deficit below 3.0% of GDP in 2005. Given its size, and provided that it is of the right composition, the additional adjustment compared to current plans needs not be harmful for growth in the short term and, by enhancing the sustainability of public finances, will have favourable effects in the longer run.

In 2005, the French authorities have to achieve an adjustment in the cyclically-adjusted deficit of at least 0.5 percentage point of GDP or by a larger amount so as to ensure that the general government deficit is brought below 3% of GDP.

Any higher-than-expected revenue in 2004 shall be allocated to deficit reduction and, should the recovery in economic activity be stronger than currently expected, the improvement in the underlying budgetary position should be accelerated.

When drawing up the measures to be taken in order to comply with these recommendations, France should take into account the recommendations issued by the Council in the framework of the 2003-05 Broad Economic Policy Guidelines.

The need to curb the dynamics of spending in the health sector is explicitly included in the Guidelines. Overall, budgetary consolidation measures should secure a lasting improvement in the general government balance.

They should be geared towards an enhancement of the quality of public finances and a reinforcement of the growth potential of the economy.

Moreover, the French authorities shall submit by 15 December 2003 a report to the Commission outlining the announced decisions to respect the recommendations under Article 104(9). As regards 2004, the report shall announce the measures or reforms to be implemented and the time-horizon for their application. It shall contain estimates of the impact of such measures on the general government deficit, including all the relevant assumptions made for the quantification. As regards 2005, the report shall indicate as clearly as possible the measures or reforms envisaged by the government. This report will be examined by the Commission and the Council assess compliance by France with the Council decision.

The French authorities shall prepare four implementation reports over the next two years for allowing the Commission and the Council to monitor the progress of the French government in correcting the excessive deficit. Such reports should be submitted in April and in October of each year following the bi-annual Excessive Deficit Procedure notification of deficit and debt data. Each of these reports will be examined by the Commission and the Council to assess compliance by France with the Council decision.

Background

Based on the evidence that the government deficit in France amounted to 3.1 per cent of GDP in 2002 and on a report from the Commission made in accordance with Article 104(3), the Council decided on 3 June that an excessive deficit exists in France. At the same time, the Council adopted a recommendation according to Article 104(7) of the Treaty with the aim of bringing the situation of excessive deficit to an end in 2004 at the latest. The Council established the deadline of 3 October 2003 for the French government to take appropriate measures to this end. On 8 October 2003, in accordance with the provisions of Article 104(8) of the Treaty, the Commission recommended the Council to decide that no effective action has been taken in response to the recommendation addressed under Article 104(7).

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