COMMISSION STAFF WORKING DOCUMENT Analysis of the budgetary situation in France Accompanying the document 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 assessment, budgetary control, budgetary equilibrium, economic forecasting, economic planning, gross domestic product, stability pact

EUROPEAN 
COMMISSION 

Brussels, 1.7.2015  
SWD(2015) 130 final 

COMMISSION STAFF WORKING DOCUMENT 

Analysis of the budgetary situation in France 

Accompanying the document 

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 

{COM(2015) 326 final} 

EN 

   EN 

 
 
 
 
  
 
 
 
TABLE OF CONTENTS 

1. 

INTRODUCTION....................................................................................................... 2 

2.  ECONOMIC DEVELOPMENTS AND OUTLOOK ................................................. 2 

3.  BUDGETARY  SITUATION  AND  UPDATED  PROJECTIONS  FOR  THE 

PERIOD 2015-2017 .................................................................................................... 4 

3.1.  General government deficit developments in 2014........................................... 4 

3.2.  Assessment of the measures included in the report on action taken ................. 5 

3.3.  Updated budgetary projections.......................................................................... 7 

3.4.  Risk assessment ................................................................................................. 8 

4.  COMPLIANCE  WITH  THE  PROVISIONS  OF  THE  STABILITY  AND 

GROWTH PACT ........................................................................................................ 8 

5.  CONCLUSION ......................................................................................................... 12 

2 

 
 
 
1. 

INTRODUCTION 

the  Commission  on  10  June  2015  as  foreseen 

This  document  assesses  France's  report  on  action  taken  which  was  submitted  to  the 
the  Council 
Council  and 
recommendation  of  10  March  2015  with  a  view  to  bringing  an  end  to  the  excessive 
government deficit in France. It does so also taking into account the April 2015 Stability 
Programme of France submitted to the Commission on 30 April 2015.  

in 

France  is  currently  subject  to  the  corrective  arm  of  the  Stability  and  Growth  Pact.  The 
Council  opened  the  Excessive  Deficit  Procedure  for  France  on  27  April  2009  with  an 
initial deadline in 2012. This deadline was extended to 2013 on 2 December 2009 and to 
2015 on 21 June 2013 based on the finding that effective action had been taken but that 
unexpected  adverse  economic  events  with  major  unfavourable  consequences  for 
government finances had occurred. On 10 March 2015, the Council considered that the 
available  evidence  did  not  allow  concluding  on  no  effective  action  and  extended  once 
more the deadline for France to bring an end to its excessive deficit situation, to 2017. It 
also  established  a  deadline  of  10  June  2015  for  France  to  take  effective  action  and  to 
report  in  detail  on  the  consolidation  strategy,  in  accordance  with  Article  3(4a)  of 
Regulation (EC) No 1467/97. 

The  Council  recommendation  of  10  March  2015  set  budgetary  targets  both  in  nominal 
and in structural terms to be complied with every year over the adjustment period. More 
specifically, it was recommended that the headline deficit reach 4.0 % of GDP in 2015, 
3.4%  in  2016  and  2.8%  in  2017,  which  was  considered  consistent  with  delivering  an 
improvement in the structural balance of 0.5% of GDP in 2015, 0.8% in 2016 and 0.9% 
in 2017. Based on the extended Commission 2015 winter forecast, the Council required 
additional measures, which represented 0.2% of GDP in 2015, 1.2% in 2016 and 1.3 % in 
2017. 

This  document  provides  an  assessment  of  the  French  budgetary  strategy,  notably 
updating  the  information  included  in  the  assessment  of  the  2015  Stability  Programme 
published on 27 May 20151. Section 2 presents the macroeconomic outlook and the main 
developments  which  took  place  since  the  publication  of  the  Commission  2015  spring 
forecast on 5 May 2015. The following section presents the recent and planned budgetary 
developments.  In  particular,  it  provides  an  assessment  of  the  budgetary  strategy  in  the 
light  of  the  information  included  in  the  report  on  action  taken.  Section  4  then  assesses 
compliance with the Council recommendation of 10 March 2015, including on the basis 
of the updated Commission forecast.  

2. 

ECONOMIC DEVELOPMENTS AND OUTLOOK  

The macroeconomic forecast underpinning the report on action taken has not been 
updated  compared  to  the  Stability  Programme.  In  its  Stability  Programme,  the 
government  expects  economic  growth  to  reach  1%  in  2015  after  only  0.2%  in  2014. 
Growth is then projected to accelerate to 1.5% in both 2016 and 2017, notably thanks to 
the 
tax  credit  for 
competitiveness  and  employment  (CICE)  and  the  responsibility  and  solidarity  pact 

implementation  of  economic  policy  measures  such  as 

the 

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  

3 

 
 
                                                 
(RSP). Meanwhile, inflation, which is projected to be at a standstill in 2015, is expected 
to rise to 1.0% in 2016 and to 1.4% in 2017.  

As pointed out in the assessment of the Stability Programme published on 27 May, 
the  macroeconomic  scenario  of  the  authorities  appears  plausible.  The  Commission 
spring forecast projects a slightly stronger GDP growth (1.1% GDP growth in 2015 and 
1.7%  in  2016).  In  2015,  the  Commission  scenario  projects  a  more  dynamic  private 
consumption  than  the  authorities,  and  a  positive  net  export  contribution.  In  2016,  the 
Commission expects that the contribution of net trade to growth would remain marginal, 
while  the  authorities  expect  a  positive  impact.  On  the  other  hand,  the  usual  no-policy-
change assumption means that only the part of the expenditure cuts planned for 2016 that 
was  specified  at  the  time  was  taken  into  account  in  the  Commission  forecast,  which 
results  in  a  higher  contribution  of  public  consumption  to  GDP  growth  than  in  the 
government's scenario.  

Table 1. Comparison of macroeconomic developments and forecasts 

Real GDP (% change)
Private consumption (% change)
Gross fixed capital formation (% change)
Exports of goods and services (% change)
Imports of goods and services (% change)

Contributions to real GDP growth:
- Final domestic demand
- Change in inventories
- Net exports
Output gap1
Employment (% change)
Unemployment rate (%)
Labour productivity (% change)
HICP inflation (%)
GDP deflator (% change)
Comp. of employees (per head, % change)
Net lending/borrowing vis-à-vis the rest of 
the world (% of GDP)

2014

2015

2016

Outturn² COM COM SP COM SP
1.5
1.1
1.5
1.6
1.5
-0.6
5.5
4.7
4.7
3.8

1.0
1.5
-1.0
4.9
4.7

0.4
0.6
-1.5
2.7
3.6

0.2
0.6
-1.2
2.7
3.7

1.7
1.5
3.0
5.9
5.8

0.4
0.2
-0.4
n.a.
n.a.
n.a.
n.a.
0.6
0.6
n.a.
n.a.

0.4
0.3
-0.3
-2.3
0.2
10.3
0.1
0.6
1.0
1.2
-1.6

1.0
-0.1
0.2
-2.3
0.5
10.3
0.6
0.0
1.0
0.5
-0.8

0.9
0.0
0.0
-2.2
0.3
n.a.
0.7
0.0
1.0
0.8
-0.9

1.6
0.0
0.0
-1.7
1.0
10.0
0.7
1.0
1.0
0.9
-1.0

1.3
0.0
0.2
-1.7
0.4
n.a.
1.0
1.0
0.9
1.6
-0.6

2017
SP
1.5
1.4
2.3
5.5
4.9

1.4
0.0
0.2
-1.4
0.3
n.a.
1.2
1.4
1.3
n.a.
-0.2

Note:
1In percent of potential GDP, with potential GDP growth recalculated by Commission services on the basis of the programme scenario 
using the commonly agreed methodology.
2Based on detailed accounts published on 13 May 2015.

Source :
Commission 2015 spring forecast (COM); Stability programme (SP).

Economic  developments  since  the  publication  of  the  Commission  2015  spring 
forecast  do  not  point  to  a  need  to  revise  the  economic  outlook.  GDP  growth  in  the 
first  quarter  of  2015  reached  0.6%,  slightly  above  the  0.4%  expected  in  this  forecast. 
However, a part of the pick-up in growth stems from temporary factors. In addition, the 
latest business surveys, i.e. for May 2015, do not point to significant changes. Therefore, 
the GDP growth projections from the 2015 spring forecast as well as the forecasts for the 
main  GDP  components  remain  valid.  Similarly,  recent  inflation  developments  have 
proved in line with the Commission spring forecast. 

4 

 
 
 
However,  the  recent  negative  developments  on  the  labour  market  suggest  that  the 
Commission forecast of gradually improving labour market outcomes might be too 
optimistic. Indeed, employment contracted in the first quarter of 2015 (-13 000 jobs in 
the private sector), and the number of unemployed further increased, reaching 3.5 million 
in  April  2015.  This  suggests  that  despite  the  recovering  GDP  growth  and  the  policy 
measures to reduce the cost of labour, employers can be expected to first improve their 
low  profit  margins  before  increasing  employment.  Therefore,  the  unemployment  rate 
would  be  expected  to  increase  further  in  2015  (by  around  0.2  pp),  before  decreasing 
again in 2016.  

3.  BUDGETARY SITUATION AND UPDATED PROJECTIONS FOR THE PERIOD 2015-2017 

The report on action taken confirms the budgetary strategy outlined in the Stability 
Programme which aims to correct the excessive deficit by 2017, the deadline set by 
the  Council.  More  specifically,  the  government  plans  to  bring  the  headline  deficit  to 
3.8%  of  GDP  in  2015,  3.3%  in  2016  and  2.7%  in  2017.  By  comparison,  the  Council 
recommended headline targets of 4.0% of GDP, 3.4% and 2.8% in 2015, 2016 and 2017, 
respectively.  The  Commission  spring  forecast  also  projected  the  general  government 
deficit to reach 3.8% of GDP in 2015. Based on a no-policy change scenario, as a number 
of measures were not specified in the Stability Programme, the Commission expected the 
headline  deficit  to  reach  3.5%  of  GDP  in  2016,  slightly  above  the  target  set  by  the 
Council.  

This  section  provides  an  update  of  the  budgetary  projections  included  in  the 
Commission 2015 spring forecast. It provides an assessment of budgetary execution for 
2014 in light of the latest data on government finances released on 13 May 2015 and the 
additional  information  included  in  the  report  on  action  taken.  Finally,  it  analyses  the 
impact of these developments on the government deficit over 2016-2017.  

3.1. General government deficit developments in 2014 

Detailed  data  for  2014  released  on  13  May  2015  confirm  that  the  general 
government  deficit  in  2014  reached  4.0%  of  GDP  compared  to  4.3%  of  GDP 
expected  at  the  time  of  the  Council  recommendation.  While  the  detailed  accounts 
could not be included in the Commission spring forecast released on 5 May, the headline 
deficit  published  on  13  May  is  in  line  with  the  level  notified  to  the  Commission  on  1 
April 2015, and included both in the Stability Programme and in the Commission spring 
forecast.  Meanwhile,  GDP  growth  for  the  year  was  revised  downwards  from  0.4% 
estimated in the notified data, in line with the macroeconomic scenario underpinning the 
Council recommendation, to 0.2% based on the new estimates. In nominal terms, GDP 
for  2014  increased  by  0.8%  compared  to  a  1.1%  growth  expected  at  the  time  of  the 
Council recommendation and 1.3% based on notified data.  

Outturn data for 2014 show that revenues have remained close to the level expected 
at  the  time  of  the  Council  recommendation.  The  amount  of  discretionary  revenue 
measures  in  the  spring  forecast  is  estimated  to  stand  at  0.5%  of  GDP,  in  line  with  the 
amount  expected  at  the  time  of  the  Council  Recommendation.  While  the  downward 
revision  in  GDP  compared  to  the  scenario  underpinning  the  Council  recommendation 
weighed on tax revenues, this was compensated by a higher elasticity of public revenues. 
Based  on  the  amount  of  discretionary  revenue  measures  considered,  the  elasticity  of 
current  revenues  to  GDP,  which  was  estimated  to  stand  at  close  to  0.8  in  2014  in  the 
Commission 2015 winter forecast, is now estimated at 1.1.  

5 

 
Public  expenditures  based  on  the  detailed  government  accounts  proved  0.3%  of 
GDP lower than expected at the time of the Council recommendation. Total public 
expenditures  increased  by  1.6%  in  2014,  compared  to  1.8%  in  2013.  Excluding  the 
increasing cost of payable tax credits, which represented EUR 21 billion in 2014 (1.0% 
of  GDP),  the  slowdown  appears  stronger  as  expenditures  increased  by  0.9%  in  2014, 
after  1.8%  in  2013.  By  comparison,  the  baseline  scenario  underpinning  the  Council 
recommendation expected public expenditures to grow by 2.2% in 2014. The lower-than-
expected  public  expenditures  are  notably  due  to  a  much  stronger-than-expected 
contraction  in  gross  fixed  capital  formation  in  2014,  mostly  driven  by  the  fall  in 
investment by local governments. Interest expenditures in 2014 also proved less dynamic 
than  expected  at  the  time  of  the  Council  recommendation,  due  to  the  low  yields  on 
government bonds and to the impact of decreasing inflation on indexed bonds.  

3.2. Assessment of the measures included in the report on action taken 

The  report  on  action  taken  submitted  on  10  June  2015  does  not  include  new 
measures  compared  to  the  Stability  Programme  submitted  on  30  April  2015. 
However,  it  provides  further  information  on  the  nature  and  the  implementation  of  the 
additional  measures  announced  as  part  of  the  Stability  Programme  in  response  to  the 
Council  recommendation  of  10  March  2015  whose  impact  is  estimated  by  the 
government at EUR 4 billion (0.2% of GDP) in 2015 and EUR 5 billion (0.2% of GDP) 
in 2016. 

Regarding  2015,  the  report  on  action  taken  confirms  the  implementation  of  the 
measures  specified  in  the  Stability  Programme  and  that  were  already  fully  taken 
into account in the Commission 2015 spring forecast. The package announced by the 
government 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  revenues  stemming  from  from  the  fight  against  tax  fraud  and  from  higher-
than-expected  dividends  from  the  Banque  de  France  (EUR  0.6  billion).  The  report  on 
action  taken  indicates  that  the  expenditure  reductions  have  started  to  be  implemented, 
with  for  example  the  publication  of  a  decree  confirming  the  planned  savings  for  the 
Central State.  

As pointed out in the assessment of the Stability Programme published on 27 May, 
part of these measures were taken in order to turn the lower-than-expected level of 
expenditures in 2014 into permanent savings. Compared to the scenario underpinning 
the  2015  budget  and  to  the  EDP  baseline  scenario,  public  expenditures  in  2014  have 
proved significantly lower than expected (see Section 3.1). Nominal expenditure targets 
set by the budget for 2015 had thus to be revised downwards in the Stability Programme 
to avoid a "rebound" compared to the surprisingly low level of expenditure recorded in 
2014.  Such  measures  imply  a  reduction  in  the  level  of  expenditures  planned  by  the 
authorities and have a positive impact on the headline deficit for 2015, which is expected 
to stand at 3.8% of GDP. However, they do not change the pace of expenditure growth 
compared to 2014 and hence have no impact on the fiscal effort2.  

In fact, the  additional measures for 2015 included in the Stability Programme are 
estimated  to  contribute  by  EUR  2.8  billion  to  the  adjustment  in  the  structural 
balance. On State expenditures, out of the EUR 1.2 billion expenditure cuts, only EUR 

2   The fiscal effort is computed on the basis of the pace of increase in public expenditures rather than on 

their level. 

6 

 
                                                 
0.3  billion  have  an  actual  impact  on  the  fiscal  effort.  Indeed  expenditures  by  state 
agencies proved to be EUR 0.9 billion lower than expected at the time of the budget law 
for 2015, due to lower disbursements related to the 'programme d'investissement d'avenir' 
(PIA) scheme. Part of the additional expenditure cuts on the State thus aim to ensure that 
the lower budgetary execution in 2014 is durable. The lower interest payments (EUR 1.2 
billion), which  can be considered as  a windfall gains, have indeed been used to reduce 
the deficit, as recommended by the Council on 10 March 2015 and they contribute fully 
to the improvement in the structural balance. Savings on social transfers planned in 2015 
(EUR 1.0 billion) contribute only EUR 0.7 billion to the fiscal effort. Indeed, savings are 
notably expected to result from a downward revision in the national norm on healthcare 
expenditures  ('objectif  national  de  dépenses  d'assurance  maladie'  or  ONDAM)  which 
actually  turned  out  to  be  EUR  0.3  billion  lower  than  expected  in  2014.  Finally,  the 
additional revenue measures planned to yield EUR 0.6 billion in 2015 fully contribute to 
the adjustment in the structural balance.  

Regarding  2016,  the  report  on  action  taken  provides  additional  details  on  the 
measures  underpinning  the  EUR  5  billion  reduction  in  expenditures,  which  were 
not  specified  in  the  Stability  Programme  and  were  thus  not  included  in  the 
Commission  spring  forecast.  According  to  the  Stability  Programme,  the  lower 
expenditures result from savings by the State (EUR 1.6 billion), social security (EUR 2.2 
billion)  and  local  government  (EUR  1.2  billion).  As  for  the  efforts  by  the  State,  letters 
were  sent  by  the  Prime  Minister  to  each  Minister  on  24  April  2015,  specifying  the 
savings  that  are  expected  to  be  incorporated  in  the  upcoming  draft  budgetary  plan  for 
2016,  and  the  related  amounts  could  thus  be  included  in  the  updated  Commission 
forecast.  Regarding  social  security,  the  savings  are  expected  to  result  from  a  lower 
ONDAM and from a review of the indexation mechanisms for social transfers. However, 
the concrete measures envisaged to achieve these savings remain unspecified and could 
not be taken into account in an updated forecast. Concerning local government, although 
the report on action taken mentions that a more ambitious objective for local government 
expenditures  would  be  set,  the  effectiveness  of  this  newly  established,  only  indicative, 
spending  norm  remains  to  be  proven.  Hence,  the  corresponding  savings  were  not 
considered in the updated forecast. 

As concerns 2017, the report on action taken does neither include further measures 
nor  details  on  the  measures  underpinning  the  adjustment  planned.  Based  on  the 
objectives  set  by  the  'loi  de  programmation  des  finances  publiques'  adopted  on  29 
December  2014,  the  Stability  Programme  included  budgetary  targets  for  the  various 
subsectors of general government but provided little detail on the underlying measures. 
While the Council recommendation of 10 March 2015 requested that France outlined the 
key budgetary measures planned for 2017, no detailed information was provided in the 
report on action taken.  

In  terms  of  structural  reforms,  the  agenda  of  the  government  remains  unchanged 
compared  to  the  National  Reform  Programme  submitted  on  30  April  2015.  The 
main  structural  reform  efforts  include  measures  to  reduce  the  cost  of  labour.  Policy 
measures have been announced, part of which are already implemented, to reduce labour 
costs and to improve firms’ profit margins amounting to EUR 40 billion (2% of GDP). 
While these measures are expected to reduce the gap between France and the euro area 
average  in  terms  of  labour  tax  wedge,  their  impact  could  be  offset  by  dynamic  wage 
growth, which points to the need for complementary labour market reforms. Reforms in 
the  services  sector  are  broadly  pursued  through  the  draft  Law  on  Growth,  Economic 
Activity and Equal Opportunities that reduces the administrative burden, notably for the 

7 

 
construction sector. The reform agenda of the government comprises additional measures 
that could impact on the growth potential of the economy. These include, in particular, a 
reform of local authorities, energy sector reforms, measures to boost private investment 
and innovation, as well as initiatives to improve the quality of the education system and 
its links to the labour market. Meanwhile, as noted in the recommendation for a Council 
recommendation  issued  by  the  Commission  on  27  May  2015,  the  tax-to-GDP  ratio  in 
France remains one of the highest in the EU and corporate tax rates are high and weigh 
negatively  on  French  companies’  investment.  In  addition,  France  suffers  from  labour 
market segmentation, as fixed-term contracts accounting for an increasing proportion of 
hires, which has a negative impact on long-term growth.  

3.3. Updated budgetary projections 

The  Commission  2015  spring  forecast  projected  the  general  government  deficit  to 
reach  3.8%  of  GDP  in  2015  and,  under  a  no-policy-change  assumption,  3.5%  of 
GDP  in  2016.  This  is  consistent  with  an  improvement  in  the  structural  balance  which 
was estimated at 0.3% of GDP in 2015 and 0.0% in 2016.  

For 2015, the information included in the report on action taken does not lead to a 
revision  in  the  impact  of  the  additional  measures  planned  on  public  finances 
compared  to  the  spring  forecast.  The  report  on  action  taken  rather  confirms  the 
information  included  in  the  Stability  Programme  on  the  EUR  4  billion  package.  The 
impact  of  this  package  on  public  finances  is  unchanged  compared  to  the  Commission 
spring forecast.  

In  2016,  only  the  additional  expenditures  planned  by  the  State  appear  sufficiently 
specified  at  this  stage  and  would  reduce  the  projected  headline  deficit  by  0.1%  of 
GDP  compared  to  the  spring  forecast,  with  a  similar  impact  on  the  structural 
balance. As pointed out in the report on action taken, letters sent by the Prime Minister 
to each Minister on 24 April 2015 specify the amount of savings expected in 2016, which 
is  estimated  at  EUR  1.6  billion  (0.1%  of  GDP).  More  specifically,  starting  from  the 
expenditures ceilings set for 2016 in the  'loi de programmation des finances publiques' 
adopted  on  29  December  2014,  ministers  are  asked  to  identify  savings  generally 
amounting to 1% of payroll (excluding pensions) and 3% of other expenditures. Efforts 
are  also  required  on  expenditures  related  to  state  agencies.  Taking  this  additional 
information  into  account,  the  estimate  by  the  Commission  of  public  expenditures  for 
2016  has  been  revised  down  by  a  similar  amount.  As  a  result,  the  general  government 
deficit for 2016 is now projected to improve by 0.1% of GDP to 3.4% of GDP compared 
to 3.5% of GDP in the spring forecast. 

3.4. Risk assessment 

Risks  to  the  budgetary  outlook  for  2015  and  2016,  as  projected  in  the  updated 
Commission spring forecast, appear overall balanced. As highlighted the Commission 
services' assessment of the Stability Programme, the main risks to the budgetary outlook 
lie in the magnitude of the projected economic recovery and its impact on public finances 
as well as in the actual implementation of the ambitious expenditure cuts planned in 2016 
and 2017.  

Recent  macroeconomic  data  confirms  the  projections  made  in  the  Commission 
spring  forecast.  The  government's  macroeconomic  forecast  laid  out  in  the  Stability 
Programme  and  in  the  report  on  action  taken,  which  is  close  to  the  spring  forecast, 
remains  plausible.  The  higher-than-expected  GDP  growth  in  the  first  quarter  of  2015 

8 

 
(0.6% compared to 0.4% in the Commission spring forecast) suggests that the economic 
recovery may be gaining ground even faster than anticipated. Still, developments in the 
labour  market  appear  more  muted  than  expected  at  the  time  of  the  spring  forecast  (see 
Section 3.1).  

Recent budgetary developments point to new risks but do not lead to a revision in 
the  budgetary  outlook.  The  elasticity  of  tax  revenues  in  2014  based  on  the  detailed 
figures  published  on  13  May  is  significantly  higher  than  estimated  at  the  time  of  the 
spring forecast (see Section 3.1). This suggests that public revenues may increase more in 
2015 than expected in the spring forecast with a positive impact on the headline balance. 
Conversely,  the  recent  increase  in  the  yields  on  sovereign  bonds  represents  a  potential 
risk as it could lead to an increase in interest payments. The impact on public finances, 
which would be gradual due to the relatively long duration of the French negotiable debt, 
could  still  put  additional  pressure  on  the  expenditure  reduction  targets.  In  addition, 
developments in the labour market could have a negative bearing on public finances. In 
particular,  recent  announcement  that  the  number  of  subsidised  jobs  in  2015  and  2016 
could be increased may result in higher expenditures.  

4.  COMPLIANCE WITH THE PROVISIONS OF THE STABILITY AND GROWTH PACT 

On  27  April  2009,  the  Council  opened  an  Excessive  Deficit  Procedure  for  France 
granting until 2012 for the authorities to bring the headline deficit below 3% of GDP. In 
the  face  of  unforeseen  economic  developments  with  negative  consequences  on  public 
finances,  and  as  France  was  considered  to  have  achieved  effective  action,  the  deadline 
was postponed three times. On 2 December 2009, the delay was extended to 2013. It was 
then extended to 2015 by the Council recommendation of 21 June 2013. Finally, on 10 
March 2015, the Council decided to extend the deadline for correction of the excessive 
deficit until 2017 (see Box 1). 

Based  on  the  updated  information  submitted  in  the  report  on  action  taken,  the 
updated  Commission  spring  forecast  expects  the  headline  deficit  to  reach  3.8%  of 
GDP in 2015 and 3.4% in 2016 in line with the recommended targets. According to 
the report on action taken and to the Stability Programme, the government plans to bring 
the headline deficit to 3.8% of GDP in 2015, 3.3% in 2016 and 2.7% in 2017, thus below 
the  general  government  deficit  targets  recommended  by  the  Council.  The  Commission 
spring forecast, which only extends to 2016, projected the general government deficit at 
3.8%  of  GDP  in  2015  and  3.5%  of  GDP  in  2016  (on  the  basis  of  a  no-policy  change 
scenario).  The  additional  expenditures  savings  for  the  State  specified  in  the  report  on 
action taken would reduce the projected general government deficit by 0.1% of GDP in 
2016 to 3.4% of GDP, the level recommended by the Council.  

However,  the  structural  adjustment  expected  based  on  the  updated  forecast 
remains below the target recommended by the Council in both 2015 and 2016. The 
spring  forecast  expected  that  the  structural  balance  would  improve  by  0.3%  of  GDP  in 
2015 and 0.0% in 2016, falling short of the 0.5% and 0.8% of GDP recommended by the 
Council  for  these  two  years.  In  2015,  the  adjustment  in  the  structural  balance  in  the 
spring  forecast  was  similar  to  the  one  expected  at  the  time  of  the  Council 
recommendation  as  additional  measures  announced  in  the  Stability  Programme  were 
compensated by a downward revision in the projected elasticity of tax revenues between 
the winter and the spring Commission forecast. Regarding 2016, the Commission spring 
forecast considered that the structural balance would remain stable, compared to a 0.4% 
of  GDP  deterioration  expected  at  the  time  of  the  Council  recommendation.  The 
improvement  in  the  structural  effort  projected  for  2016  between  the  baseline  scenario 

9 

 
underpinning the Council recommendation and the spring forecast results notably from a 
revision in the scenario for local government expenditures as the impact of the electoral 
cycle and of the announced cuts in grants by the State was much stronger than assumed 
at the time of the recommendation. In addition, the spring forecast anticipates a rebound 
in the elasticity of tax revenues in 2016. Compared to the spring forecast, regarding 2015, 
the information provided in the report on action taken does not change the assessment by 
the  Commission  of  the  various  measures  included  in  the  Stability  Programme  and  the 
improvement in the structural balance is expected to remain unchanged at 0.3% of GDP. 
In particular, the additional package announced in the Stability Programme is set to have 
an  impact  of  only  EUR  2.8  billion  (0.1%  of  GDP)  on  the  structural  effort.  Regarding 
2016,  taking  into  account  the  expenditure  reductions  specified  in  the  report  on  action 
taken (and amounting to 0.1% of GDP), the structural balance is projected to improve by 
0.1%  of  GDP,  still  much  below  the  0.8%  of  GDP  improvement  recommended  by  the 
Council.  

Table 2. France- comparison of budgetary projections 

% of GDP

Headline budget balance

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%

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%

* The 2015 Commission spring forecast extends only to 2016

** Scenario underpinning the Council Recommendation of 10 March 2015

Although  the  headline  targets  set  by  the  Council  are  expected  to  be  met  in  2015  and 
2016, the adjustment in the structural balance is set to remain lower than recommended 
by the Council in both years. This situation calls for a careful analysis of the fiscal effort 
based  on  the  improvement  in  the  adjusted  structural  balance  and  on  the  amount  of 
measures taken (see Box 1). 

10 

 
 
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  action4  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 achieved. At the same time, a careful analysis should be 
conducted to better understand the nature of the underlying budgetary developments. 

Regarding 2015, the careful analysis confirms that the fiscal effort is expected to fall 
short of the level recommended by the Council. The information included in the report 
on  action  taken  confirms  the  assessment  of  expenditure  developments  made  by  the 
Commission. 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, unchanged compared to the one 

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). 

11 

 
 
                                                 
 
 
estimated in the Commission services' assessment of the 2015 Stability Programme. This 
compares  with  an  improvement  of  0.3%  of  GDP  expected  at  the  time  of  the  Council 
recommendation. The adjusted structural effort is thus expected to remain lower than the 
0.5% of GDP 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, part of the additional 
measures described in the report on action taken consists in savings resulting from lower 
interest payments. Savings have also resulted from the impact of the lower inflation on 
inflation-indexed government bonds. These savings on interest payments 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 effort5. Excluding interest payments, expenditure growth appears similar 
to  the  one  expected  in  the  EDP  scenario  and  the  bottom-up  effort  is  thus  projected  to 
stand at 0.0% of GDP.  

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  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 a deterioration of 0.1% of GDP expected in the 
Commission services' assessment of the Stability Programme and to an improvement of 
0.8%  of  GDP  recommended  by  the  Council.  Similarly,  the  additional  bottom-up  fiscal 
effort  compared  to  fiscal  developments  projected  at  the  time  of  the  Council 
recommendation  of  10  March  amounts  to  0.4%  of  GDP  compared  to  0.3%  of  GDP 
expected by the Commission based on the Stability Programme. Still, the fiscal effort for 
2016  is  expected  to  fall  significantly  short  of  the  1.2%  of  GDP  recommended  by  the 
Council on 10 March 2015.  

Table 3. France Assessment of the fiscal effort 

% 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%

Efforts  have  been  made  to  step  up  expenditure  reviews  and  windfall  gains  have 
been used for deficit reduction, as recommended by the Council. Expenditure savings 
are expected to be supported by spending reviews, which are either on-going or still to be 
launched.  Notably,  the  'loi  de  programmation  des  finances  publiques'  of  29  December 
2014 foresees that annual expenditure reviews will be conducted as part of the budgetary 
cycle,  starting  in  2016.  The  government  has  decided  that  an  exercise  would  already  be 
launched in 2015 to support the slowdown in public expenditure growth planned in 2016. 
Still,  the  report  on  action  taken  provides  no  details  on  the  expected  outcome  of  these 
reviews.  In  case  the  efficiency  gains  identified  through  these  reviews  turn  out  to  be 
insufficient,  the  budgetary  targets  set  in  the  Stability  Programme  and  in  the  report  on 

5   By contrast, they contribute to the change in the structural balance. 

12 

 
 
                                                 
action taken could be at risk. Moreover, windfall gains, notably resulting from the lower 
the  Council 
interest  payments  compared 
recommendation, have contributed to the downward revision in the headline targets for 
2015  and  2016  and  can  thus  be  considered  to  have  been  used  for  deficit  reduction,  as 
recommended by the Council. 

those  expected  at 

time  of 

the 

to 

The assessment of the key measures underpinning the adjustment for 2016 and 2017 
recommended  by  the  Council  is  not  provided  in  the  report  on  action  taken.  The 
Council  recommended  that  an  evaluation  is  provided  well  ahead  of  the  deadline  of  10 
June 2015. Providing an evaluation of the key measures underpinning the adjustment, in 
particular  as  the  latter  is  mainly  based  on  expenditure  reductions,  improves  the 
transparency  of  the  budgetary  strategy  and  allows  for  a  better  assessment  of  the 
credibility  of  the  fiscal  targets.  Finally,  the  government  has  not  updated  its  'loi  de 
programmation des finances publiques' to reflect the updated budgetary targets set by the 
Council, as was recommended. 

Box 2. Summary of the Council recommendation of 10 March 2015 

On 10 March 2015, the Council recommended France under Article 126(7) of the Treaty 
to correct its excessive deficit by 2017 at the latest.  

(a) To this end, France should reach a headline deficit of 4.0% of GDP in 2015, 3.4% of 
GDP  in  2016  and  2.8  %  of  GDP  in  2017,  which  was  consistent  with  delivering  an 
improvement  in  the structural balance  of  0.5%  of  GDP  in  2015,  0.8%  of  GDP  in  2016 
and 0.9% of GDP in 2017. This required additional measures of 0.2% of GDP in 2015, 
1.2%  of  GDP  in  2016  and  1.3%  of  GDP  in  2017  based  on  the  extended  Commission 
services' 2015 winter forecast.  

(b) Furthermore, France should fully implement the already adopted measures for 2015 
and  ensure,  by  the  end  of  April  2015,  an  additional fiscal effort of  0.2%  of  GDP.  This 
would  require  the  specification,  adoption  and  implementation  of  additional  structural 
discretionary  measures  equivalent  to  0.2%  of  GDP  to  close  the  gap  with  the 
recommended improvement in the structural balance of 0.5% of GDP for 2015.  

(c) In addition, France should step up efforts to identify savings opportunities across all 
sub-sectors  of  general  government,  including  at  social  security  and  local  government 
levels, and use all windfall gains for deficit reduction. Budgetary consolidation measures 
should  secure  a  lasting  improvement  in  the  general  government  structural  balance  and 
should  not  be  detrimental  to  the  improvement  of  the  competitiveness  of  the  French 
economy.  

(d)  The  Council  established  the  deadline  of  10  June  2015  for  France  to  take  effective 
action and, in accordance with Article 3(4a) of Regulation (EC) No 1467/97, to report in 
detail on the consolidation strategy that is envisaged to achieve the targets. France should 
report in detail on (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.  An  evaluation  of  the  key  measures 
underpinning  the  adjustment  for  2016  and  2017  shall  be  provided  well  ahead  of  the 
deadline of 10 June 2015. 

13 

 
5.  CONCLUSION 

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. The expenditure savings 
planned for 2016 and 2017 have not yet been fully specified and based on the experience 
with  the  previous  expenditure  reviews,  there  are  risks  that  the  savings  opportunities 
identified  in  the  upcoming  exercises  may  not  be  sufficient  to  effectively  support  the 
implementation  of  the  ambitious  expenditure  targets  set  for  the  coming  years.  An 
ambitious  budgetary  strategy  is  key  to  ensure  a  durable  correction  of  the  excessive 
deficit.  

14 

 
 
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

25.8
-2.9
28.8
*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 Commi s s ion s pring 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

15