COMMUNICATION FROM THE COMMISSION Assessment of action taken by FRANCE in response to the Council Recommendation of 10 March 2015 with a view to bringing an end to the situation of excessive government deficit
Date: 2015-07-01
Institutions: European Commission
Subjects: France, budget deficit, budgetary control, budgetary equilibrium, economic forecasting, economic planning, fiscal policy, gross domestic product, stability pact

1. 

EUROPEAN 
COMMISSION 

Brussels, 1.7.2015  
COM(2015) 326 final 

COMMUNICATION FROM THE COMMISSION 

Assessment of action taken 

by FRANCE 

in response to the Council Recommendation of 10 March 2015 with a view to bringing 
an end to the situation of excessive government deficit 

{SWD(2015) 130 final} 

EN 

   EN 

 
 
 
 
  
 
 
 
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 Programme1, 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 

1  

'Assessment of the 2015 Stability Programme for France', 27 May 2015, available at: 
http://ec.europa.eu/economy_finance/economic_governance/sgp/pdf/20_scps/2015/10_fr_scp_en.pdf 

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expenditures  planned  by  the  authorities.  However,  they  do  not  change  the  pace  of  public 
expenditure growth and hence have no impact on the fiscal effort2.  

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. 

2  

The fiscal effort is computed on the basis of the pace of increase in public expenditures rather than on their 
level (See Box 1). 

3 

 
 
                                                            
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 Conduct3, 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 4  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.  

If  the  Member  State  fails  or  is  at  risk  of  failing  to  meet  the  headline  deficit  target  or  the 
required  improvement  in  the  structural  balance,  a  careful  analysis  of  the  reasons  of  the 
shortfall is undertaken. The careful analysis assesses whether the Member State has acted in 
compliance with the recommendation building on two complementary fiscal effort measures: 
(i) the 'top-down' approach, which measures the change in the structural balance adjusted for 
the  revision  of  potential  output  growth,  revenue  windfalls/shortfalls  and  unexpected  events; 
and  (ii)  the  'bottom-up'  approach,  which  estimates  the  budgetary  impact  of  the  individual 
discretionary  fiscal  measures  implemented  and  the  development  in  expenditures  under  the 
control  of  the  government  compared  to  the  baseline  scenario  underpinning  the  Council 
Recommendation.  The  careful  analysis  is  also  complemented  by  other  relevant  qualitative 
considerations  allowing  the  Commission  to  provide  a  qualified  judgment  on  whether  the 
Member State has taken enough policy actions to comply with the EDP recommendation.  

If the careful analysis indicates that the Member State concerned has delivered on its policy 
commitments, the assessment will conclude that effective action has been taken. If the careful 
analysis  shows  that  policy  commitments  have  not  been  delivered  and  the  headline  deficit 
targets are expected to be missed, the assessment will conclude that effective action has not 
been taken. However, if the headline deficit targets are expected to be met, the procedure shall 
be  held  in  abeyance,  even  when  the  recommended  change  in  the  structural  balance  is  not 

3  

“Specifications on the implementation of the Stability and Growth Pact and guidelines on the format and 
content of stability and convergence programmes”, available at:   
http://ec.europa.eu/economy_finance/economic_governance/sgp/index_en.htm. 

4   As endorsed by the Council on 20 June 2014: 

(http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/143293.pdf). 

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achieved. At the same time, a careful analysis should be conducted to better understand the 
nature of the underlying budgetary developments. 

The improvement in the structural balance stemming from the updated Commission forecast 
amounts to 0.3% of GDP in 2015 and 0.1% in 2016, falling short of the effort of 0.5% and 
0.8%  of  GDP  recommended  by  the  Council.  Regarding  2015,  the  expected  improvement  in 
the structural balance remains unchanged compared to the spring forecast at 0.3% of GDP and 
is similar to the one expected at the time of the Council recommendation. More specifically, 
the  additional  package  of  EUR  4  billion  announced  in  the  Stability  Programme  is  set  to 
increase  the  structural  effort  by  EUR  2.8  billion  (0.1%  of  GDP).  However,  this  impact  is 
compensated by a downward revision in tax elasticities. Regarding 2016, the improvement in 
the structural balance was estimated to be 0.0% of GDP in the spring forecast and -0.4% of 
GDP in the EDP baseline scenario. Taking into account the further reduction in expenditure 
specified in the report on action taken, the structural balance is now projected to improve by 
0.1% of GDP, still well below the 0.8% of GDP improvement recommended by the Council.  

As  is  foreseen  by  the  methodology  for  assessing  effective  action  (see  Box  1),  this  situation 
calls  for  a  careful  analysis  of  the  fiscal  effort  based  on  the  adjusted  improvement  in  the 
structural  balance  (top-down  approach)  and  on  the  amount  of  measures  taken  (bottom-up 
approach). 

Table 1. Comparison of budgetary projections 

% of GDP

Headline budget balance

Adjustment in the 
structural balance
2015
2016
0.0%
0.3%
0.1%
0.3%
0.1%
0.3%
-0.4%
0.3%
0.8%
0.5%

Commission 2015 spring forecast
Updated Commission 2015 spring forecast
Stability Programme
Baseline scenario (2015 winter forecast)**
EDP target
Notes: 
Structural balances based on the Stability Programme are recalculated by Commission on the basis of the Stability Programme scenario 
using the commonly agreed methodology. 

2016
-3.5%
-3.4%
-3.3%
4.1%
-3.4%

2017*
-
-
-2.7%
4.1%
-2.8%

2015
-3.8%
-3.8%
-3.8%
4.1%
-4.0%

* The 2015 Commission spring forecast extends only to 2016

** Scenario underpinning the Council Recommendation of 10 March 2015

Regarding 2015, the careful analysis confirms that the fiscal effort is expected to fall short of 
the level recommended by the Council. Correcting for changes in potential growth as well as 
for revenue shortfalls since the time of the Council recommendation, the improvement in the 
adjusted structural balance is estimated to represent 0.4% of GDP in 2015 compared to 0.5% 
recommended  by  the  Council.  The  bottom-up  fiscal  effort  is  projected  to  be  unchanged  at 
0.0%  of  GDP  as  estimated  in  the  Commission  2015  spring  forecast,  compared  to  0.2%  of 
GDP  recommended  by  the  Council.  Indeed,  the  impact  of  the  additional  measures  for  2015 
described  in  the  report  on  action  taken  is  offset  by  the  correction  for  savings  on  interest 
payments,  which  are  considered  as  outside  the  government's  control  according  to  the 
commonly  agreed  methodology  for  assessing  effective  action  and  hence  are  not  taken  into 
account in the calculation of the bottom-up fiscal effort for 2015.  

In 2016, the careful analysis also shows a shortfall compared to the fiscal effort recommended 
by the Council. Taking into account the measures specified in the report on action taken and 

5 

 
 
 
 
 
correcting for changes in potential growth as well as for revenue windfalls since the time of 
the Council recommendation, the adjusted structural balance is projected to remain constant 
compared to an improvement  of  0.8% of GDP recommended by the Council. Similarly, the 
additional savings on the State are expected to bring the bottom-up fiscal effort from 0.3% of 
GDP  estimated  in  the  spring  forecast  to  0.4%  of  GDP,  falling  short  of  the  1.2%  of  GDP 
recommended by the Council on 10 March 2015.  

The  Council  recommendation  of  10  March  2015  also  called  for  an  evaluation  of  the  key 
measures planned for 2016 and 2017. This assessment is not provided in the report on action 
taken. In particular, expenditure savings in 2016 and 2017 are expected to be supported by the 
outcome of spending reviews which are either on-going or still to be launched. Moreover, the 
'loi de programmation des finances publiques' has not been updated as recommended by the 
Council. 

Table 2. Comparison of adjusted change in the structural balance and fiscal efforts 
based on Commission 2015 spring forecast 

% of GDP

Adjusted change in the 
 structural balance 

Bottom-up effort

Commission 2015 spring forecast
Updated Commission 2015 spring forecast
Baseline scenario (2015 winter forecast)*
EDP target
* Scenario underpinning the Council Recommendation of 10 March 2015

2015
0.4%
0.4%
0.3%
0.5%

2016
-0.1%
0.0%
-0.4%
0.8%

2015
0.0%
0.0%

2016
0.3%
0.4%

0.2%

1.2%

4. 

CONCLUSIONS 

The  report  on  action  taken  submitted  by  France  on  10  June  2015  confirms  the  plan  of  the 
French government to correct the excessive deficit by 2017, the deadline set by the Council, 
and provides some further clarifications on the measures underpinning the budgetary strategy 
set  forth  in  the  Stability  Programme  of  France.  However,  no  additional  measures  are 
presented compared to those already announced in the Stability Programme.  

Overall,  based  on  the  information  available  at  this  stage,  the  general  government  deficit  is 
expected  to  reach  3.8%  of  GDP  in  2015  and  3.4%  in  2016,  in  line  with  the  targets 
recommended by the Council on 10 March 2015. The improvement in the structural balance, 
as estimated by the Commission based on the information available on 10 June, appears to fall 
short of the recommended effort in both 2015 and 2016. A careful analysis, based both on an 
assessment of the adjusted change in the structural balance ('top-down' approach) and of the 
amount  of  measures  planned  ('bottom-up'  approach),  also  concludes  that  the  fiscal  effort  is 
expected  to  fall  short  of  the  level  recommended  by  the  Council.  Furthermore,  although  the 
Council recommendation called for an evaluation of the key measures planned for 2016 and 
2017,  this  assessment  was  not  provided  in  the  report  on  action  taken.  Finally,  the  'loi  de 
programmation des finances publiques' was not updated as recommended by the Council.  

The  consolidation  strategy  pursued  by  France  relies  primarily  on  the  improving  cyclical 
conditions and a continuation of the low interest environment. Therefore, in order to ensure a 

6 

 
 
 
 
 
durable correction of the excessive deficit by the established deadline, the budgetary strategy 
would need to be further reinforced. In particular, the expenditure savings planned for 2016 
and 2017 need to be further specified and windfall gains, notably resulting from higher-than-
expected tax revenues or lower interest rates, should be used for deficit reduction. Moreover, 
efforts should be stepped up to make the spending review more effective and identify savings 
opportunities  across  all  sub-sectors  of  general  government,  including  on  social  security  and 
local government, as recommended by the Council. Moreover, it will be important to back the 
fiscal  consolidation  by  the  implementation  of  comprehensive  and  ambitious  structural 
reforms, in line with the Council recommendations addressed to France in the context of the 
European  Semester  and  in  particular  those  related  to  the  Macroeconomic  Imbalance 
Procedure.  

In sum, the headline deficit targets are expected to be met both in 2015 and 2016, while the 
fiscal effort, according to all metrics, falls short of the recommended one in 2015 and 2016. 
Therefore,  according  to  the  methodology  for  assessing  effective  action,  the  Commission 
considers that the procedure is to be held in abeyance.  

7 

 
 
EDP related tables 

Table A1. Adjustment of apparent structural effort for the revision in potential growth – 
details of calculation 

Potential GDP 
growth 
underlying the 
Council 
Recommendation 
(% )
(1)

2015

2016

1.0

1.1

Potential GDP 
growth at the time 
of assessment 
(% )

Forecast error 
(% )

Structural 
expenditure   
(%  of 
potential 
GDP)

Correction 
coefficient α     
(%  of nominal 
potential GDP)

(2)

1.0

1.1

(3)=(1)-(2)

0.0

0.0

(4)

55.8

55.5

(5)=(3)*(4)/100

0.0

0.0

Ba s ed on the 2015 Commi s s i on s pri ng foreca s t

Table  A2.  Adjustment  of  apparent  structural  effort  for  the  revision  in  revenue 
shortfalls/windfalls – details of calculation 

Change in current 
revenues (yoy) 
(billions)

Discretionary current 
revenue measures 
(billions )

Nominal GDP growth 
assumptions (% )

change in output gap

Current revenues  in 
year t-1 (billions)

Revenue gap (billions )*

recom.
(1)

assessment
(1')

recom.
(2)

assessment
(2')

recom.
(3)

assessment
(3')

recom.
(4)

assessment
(4')

recom.
(5)

assessment
(5')

2015

2016

20.4

19.1

2.5

-2.9
28.8
25.8
*revenue elasticity (ε): 1.1

1.8

-0.5

1.8%

2.8%

2.1%

2.7%

0.0

0.7

0.1

0.6

1135.6

1156.0

1135.7

1154.8

Ba s ed on the 2015 Commis s i on s pri ng foreca s t

(6)=[(1')-(2')-[(3')+(ε-
1)*(4')/100]*(5')]-[(1)-(2)-
[(3)+(ε-1)*(4)/100]*(5)]
-3.8

2.6

Nominal 
GDP

Correction 
coefficient β (%  
of nominal GDP)

assessment
(7)

(8)=100*(6)/(7)

2186.7

2244.8

-0.2

0.1

8