COUNCIL OPINION

of 15 March 1999

on the stability programme of France, 1999 to 2002

(1999/C 124/02)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies(1), and in particular Article 5(1) and (2) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 15 March 1999, the Council examined the stability programme of France which covers the period 1999 to 2002. From a formal point of view, the Council notes that the French authorities presented the programme pluriannuel de finances publiques as its stability programme. The Council notes that the objective of the programme is to reduce further the general government deficit and ensure that the debt ratio starts declining and continues to remain below the 60 % of GDP reference value. Moreover, the Council considers that the programme is consistent with the Broad Economic Policy Guidelines.

The stability programme presents two macroeconomic scenarios for the period 1999 to 2002. Under a favourable scenario, the GDP growth rate is projected to rise to 3 %, on average for the period 2000 to 2002, from 2,7 % forecast for 1999. According to a more cautious scenario the growth rate is adjusted downwards to 2,4 % for 1999 and to 2,5 % on average, for the period 2000 to 2002. The general Government deficit is projected to decline at the end of 2002 to 0,8 % of GDP under the favourable scenario and to 1,2 % under the cautious scenario. The debt ratio is expected to fall to 57,1 % or 58,3 % of GDP, according to the alternative scenarios.

The Council considers that the macroeconomic performance of French economy in recent years characterised by sound fundamentals, strong domestic demand in a context of price stability and declining unemployment enhances the capacity of the economy to achieve the objectives of the stability programme. The Council notes that the more cautious macroeconomic scenario presents realistic GDP growth assumptions close to growth potential and past performance; GDP growth projections based on the favourable scenario can be considered as the upper bound of a range of growth projections.

The Council commends the fact that the Government deficit reduction over the period covered by the stability programme is entirely attributable to the expected reduction in Government expenditure; this addresses the problem of the very high level of Government expenditure in France, particularly current primary expenditure. Moreover, the Council welcomes the adoption of a norm of restraint for real Government expenditure as an anchor for fiscal consolidation; an annual increase of 1 % in real terms is the ceiling established for general Government spending as a whole, while central Government spending is limited at 0,3 % and social security and local Government spending at 1,5 %. To be successful, a strategy based on expenditure ceilings requires an effective scheme to rein in expenditure as soon as any slippage is detected.

The Council welcomes the fact that the programme recognises the need for such a mechanism. The Council considers that respect of the expenditure ceilings is essential for the achievement of the Government deficit objectives. The Council urges the French Government to define ways to maintain strict adherence to these norms, including the case of inflation lower than estimated in the programme.

The Council notes that the share of public investment in GDP is above the European average. It considers nevertheless that a more resolute restructuring of expenditure towards investment would be beneficial to potential growth and competitiveness, provided that it does not jeopardise the budgetary targets of the programme.

The Council welcomes the fact that in parallel to budgetary consolidation, a key objective of the stability programme is the reduction in the tax burden, notably taxes on labour, in order to foster employment.

The Council notes that the underlying Government deficit for the year 2002, under both macroeconomic scenarios, provides a safety margin allowing France, in the event of a normal cyclical downturn, to let the automatic stabilisers work without any large risk of exceeding the 3 % of GDP reference value. In this sense the Council considers that the medium-term budgetary situation in the programme is in line with the requirements of the Stability and Growth Pact. However, the Council considers that the safety margin provided by the projections of the stability programme should be wider in order to accommodate unforeseen developments in the coming years, such as, for example, the uncertain budgetary impact of major structural reforms. The Council therefore welcomes the commitment of the French authorities to pursue the public finance targets regarding public expenditures in the programme as rigorously as possible and to take any measures necessary to prevent or correct a deterioration of the consolidation path announced in the programme.

The Council welcomes the introduction of measures aimed at creating favourable conditions for employment and enhancing economic efficiency by promoting innovation, risk-taking and the modernisation of the public sector. It encourages the French Government to proceed further in implementing the necessary reforms in order to enhance the performance of the economy.

(1) OJ L 209, 2.8.1997, p. 1.