1.Introduction

On 10 March 2015 the Council issued a recommendation to France under Article 126(7) of the Treaty, with a view to bringing an end to the excessive deficit situation by 2017. France was recommended to reach a headline deficit of 4.0% of GDP in 2015, 3.4% of GDP in 2016 and of 2.8% of GDP in 2017. Based on the macroeconomic forecast underlying the Council recommendation, this was considered consistent with an improvement of the structural balance of 0.5% of GDP in 2015, 0.8% for 2016 and 0.9% in 2017 and would require additional measures of 0.2% of GDP in 2015, 1.2% in 2016 and 1.3% in 2017.

In accordance with Article 3(4a) of Council Regulation (EC) No 1467/97, the Council established the deadline of 10 June 2015 for France to report in detail on action taken regarding (i) the additional structural discretionary measures, representing 0.2% of GDP, adopted to ensure the achievement of the recommended improvement in the structural balance in 2015; and (ii) the outlined key budgetary measures for reaching the targets in 2016 and 2017. The "loi de programmation des finances publiques" should be updated to reflect the new adjustment path. In addition, France was required to provide an ex-ante evaluation of the key measures underpinning the adjustment for 2016 and 2017 ahead of the deadline.

At the established deadline, the French authorities submitted a report to the Commission presenting the measures taken in response to the Council recommendation and outlining the consolidation strategy envisaged to achieve the targets set by the Council.

The Commission has examined the budgetary strategy of France based on the information included in the report on action taken, in order to assess whether France has complied with the Council recommendation of 10 March 2015.

2.Measures included in the report on action taken and updated budgetary projections

The report on action taken released on 10 June 2015 confirms the budgetary strategy outlined in the Stability Programme of France submitted on 30 April 2015, which aims to correct the excessive deficit by 2017, the deadline set by the Council. The report does not include new measures, but provides further information on the nature and the implementation of the additional measures announced in the Stability Programme in response to the Council recommendation of 10 March 2015 representing EUR 4 billion in 2015 and EUR 5 billion in 2016.

Regarding 2015, the report confirms the EUR 4 billion (0.2% of GDP) package of measures announced in the Stability Programme that were already fully taken into account in the Commission 2015 spring forecast. This package consists of a further reduction in State expenditures (EUR 1.2 billion), lower interest payments (EUR 1.2 billion) and social transfers (EUR 1 billion), as well as additional revenue measures (EUR 0.6 billion). As pointed out in the Commission's services' assessment of the Stability Programme , EUR 1.2 billion of these measures have been taken in order to turn the lower-than-expected level of expenditures observed in 2014 into permanent savings. These measures imply a reduction in the level of expenditures planned by the authorities. However, they do not change the pace of public expenditure growth and hence have no impact on the fiscal effort.

Regarding 2016, the report on action taken provides additional information on the measures underpinning the EUR 5 billion (0.2% of GDP) expenditure savings, which were not sufficiently specified in the Stability Programme and were thus not included in the Commission 2015 spring forecast. The lower expenditures would result from savings by the State (EUR 1.6 billion), social security (EUR 2.2 billion) and local government (EUR 1.2 billion). At this stage, only the additional expenditure reductions planned by the State (EUR 1.6 billion), which have been documented by letters sent by the Prime Minister to each Minister on 24 April 2015, appear sufficiently specified to be taken into account in the Commission's assessment. The remaining savings planned by the authorities can only be included in the Commission forecast once the measures underpinning the budgetary strategy have been sufficiently specified.

For 2017, the report on action taken does neither include further measures nor details on the measures underpinning the adjustment planned.

The Commission 2015 spring forecast, which extends to 2016, projected the general government balance to reach a deficit of 3.8% of GDP in 2015, thus below the headline target of 4.0% of GDP set in the Council recommendation. For 2016, under a no-policy-change assumption, the deficit was projected at 3.5% of GDP, above the recommended 3.4% of GDP target.

In light of the information provided in the report on action taken, the updated Commission spring forecast expects the headline deficit to remain unchanged in 2015 at 3.8% of GDP and to decrease to 3.4% of GDP in 2016. For 2015, the report on action taken confirms the impact on public finances of the EUR 4 billion package as estimated in the spring forecast. For 2016, only the additional consolidation measures planned on State expenditures, representing EUR 1.6 billion (0.1% of GDP) appear sufficiently specified at this stage and have therefore been included in the updated Commission forecast. Accordingly, the projected general government deficit for 2016 is revised down to 3.4% of GDP from 3.5% in the spring forecast.

Risks to the budgetary outlook for 2015 and 2016, as projected in the updated Commission spring forecast, appear overall balanced. The higher-than-expected GDP growth in the first quarter of 2015 (0.6% compared to 0.4% in the Commission spring forecast) suggests that the economic recovery may be gaining ground faster than anticipated. In addition, a higher-than-expected elasticity of tax revenues could have a positive impact on the headline deficit over 2015 and 2016. On the contrary, the disappointing developments in the labour market may have a negative impact on public finances. Similarly, the recent increase in the yields on sovereign bonds could lead to an increase in interest payments and hence put additional pressure on the expenditure reduction targets.





3.Assessment of action taken

Based on the information submitted in the report on action taken, the updated Commission spring forecast expects a headline deficit of 3.8% of GDP in 2015, below the target set by the Council for that year, and 3.4% in 2016, in line with the target set by the Council. The adjustment in the structural balance is, however, set to remain lower than recommended by the Council in both years.

Box 1. Methodology for assessing effective action

According to Regulation (EC) No 1467/97 and the Code of Conduct, a Member State should be considered to have taken effective action if it has acted in compliance with the Article 126(7) TFEU recommendation. The Code of Conduct states that the assessment of effective action should in particular take into account whether the Member State concerned has achieved the annual budgetary targets and the underlying improvement of its cyclically adjusted balance, net of one-off and other temporary measures, as recommended by the Council.

The methodology for assessing effective action requires first considering whether the Member State is compliant with the nominal target and the underlying improvement in the structural balance required in the EDP recommendation. If this is the case, the procedure is held in abeyance.