Council Recommendation of 21 January 2003 with a view to giving early warning to France in order to prevent the occurrence of an excessive deficit
Date: 2003-01-21
Institutions: Council of the European Union
Subjects: France, budget deficit, budget policy, gross domestic product, public administration

L 34/18

EN

Official Journal of the European Union

11.2.2003

COUNCIL RECOMMENDATION

of 21 January 2003

with a view to giving early warning to France in order to prevent the occurrence of an excessive
deficit

(2003/90/EC)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Commu-
nity, and in particular Article 99(4) thereof,

Having regard to the 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 6(2) thereof,

Having regard to the recommendation of the Commission,

Whereas:

(1)

(2)

(3)

(4)

Article 6(2) of Regulation (EC) No 1466/97, as part of
the Stability and Growth Pact, establishes an early
warning system for alerting a Member State at an early
stage to the need to make the necessary budgetary
adjustment to prevent a government deficit becoming
excessive. An early warning should be given when the
Council
identifies actual or expected significant diver-
gence of the budgetary position in a Member State from
the medium-term budgetary objective, or the adjustment
path towards it, set
in the Member State's stability
programme for the government balance.

In the Resolution on the Stability and Growth Pact
adopted in Amsterdam on 17 June 1997 (2)
the
European Council invited all parties to implement the
Treaty and the Stability and Growth Pact in a strict and
timely manner.

In the 2001 updated stability programme of France, on
which the Council delivered an opinion on 12 February
2002 (3), the French authorities aimed at a 1,4 % of GDP
general government deficit in 2002 and 1,3 % of GDP in
2003. The projections for the 2002 general government
deficit were rectified to 1,8 % of GDP in February by the
French authorities, when they revised the projections for
the 2002 real GDP growth from 2,5 % to 1,5 %.

The general government deficit in France in 2002 is
now projected at 2,8 % of GDP by the French authorities
and at 2,7 % of GDP by the Commission, thus 1,4
percentage point above the initial target set in the 2001
updated stability programme. According to Commission
services calculations, less than one half, i.e. 0,5 percen-
tage point of GDP, of the total slippage in the general
government deficit in 2002 can be attributed to cyclical
factors. The remaining part represents a deterioration in
the cyclically-adjusted balance.

(5)

(6)

(7)

(8)

(9)

As a consequence of this slippage, the French budgetary
position in 2002 is far from close to balance, in actual
and cyclically-adjusted terms.
the cyclically-
adjusted deficit is estimated by the Commission services
to have increased from about 2 % of GDP in 2001 to
2,7 % of GDP in 2002. This level is clearly too high to
ensure that
the general government deficit does not
breach the 3 % of GDP reference value under normal
cyclical fluctuations.

Indeed,

The draft budget
for 2003 presented in September
projects a slight reduction in the general government
deficit at 2,6 % of GDP, in the context of an expected
acceleration in real GDP growth to 2,5 %. The Broad
Economic Policy Guidelines for 2002 recommended that
France should ‘aim at a sufficient decline of the 2003
deficit to ensure that a close to balance position in 2004
can be achieved’. According to Commission calculations
based on the French programme update, the cyclically-
adjusted budgetary deficit will decline slightly by 0,2 %
to 2,6 % in 2003.

the macroeconomic perspectives,

Taking also into account significant downward risks
surrounding
the
budgetary position foreseen in the 2003 draft budget is
at a level which could lead to the occurrence of an
excessive deficit, should the recovery be less pronounced
than assumed in the budget or in case further slippage
in the 2003 budget would occur. The Commission
autumn forecasts project an increase in the general
government deficit from 2,7 % in 2002 to 2,9 % of GDP
in 2003, in a context where real GDP growth accelerates
from 1,0 % in 2002 to 2,0 % in 2003.

these elements,

In view of
the risk for the general
government deficit to breach the 3 % of GDP threshold
has not been removed. Moreover, this divergence influ-
ences medium term commitments, as the attainment of
a close to balance position is now postponed.

On the basis of information provided by the French
authorities and of the assessments made by the Commis-
sion, the Council
identifies a significant divergence in
terms of Article 6(2) of Council Regulation (EC) No
1466/97.

(1) OJ L 209, 2.8.1997, p. 1.
(2) OJ C 236, 2.8.1997, p. 1.
(3) OJ C 51, 26.2.2002, p. 4.

(10)

There is a need for an early warning to be given alerting
France in order to prevent the occurrence of an excessive
deficit,

11.2.2003

EN

Official Journal of the European Union

L 34/19

HEREBY RECOMMENDS:

1. The French Government should take all the appropriate
measures in order to ensure that the general government
deficit does not breach the 3 % of GDP threshold in 2003.

2. Adopting measures apt to improve the cyclically-adjusted
budgetary position by at least 0,5 percentage point of GDP
would not only reduce the risk for the general government
deficit to breach the 3 % of GDP threshold in 2003, but also
contribute to resuming a budgetary consolidation path
towards a close to balance position as from 2003.

3. Continuous adjustment in the underlying budgetary position
by at least 0,5 % of GDP per year should be pursued also in
subsequent years in order to achieve the medium-term
budgetary position of close to balance or in surplus by
2006.

This Recommendation is addressed to the Republic of France.

Done at Brussels, 21 January 2003.

For the Council

The President

N. CHRISTODOULAKIS