REPORT FROM THE COMMISSION France Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union
Date: 2020-05-20
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: France, budget deficit, budget policy, budgetary control, epidemic, gross domestic product, infectious disease, macroeconomics, public debt, stability pact

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 20.5.2020  COM(2020) 538 final  REPORT FROM THE COMMISSION France  Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union  
 
 
REPORT FROM THE COMMISSION 

France 

Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of 
the European Union 

1. 

INTRODUCTION  

On  20  March  2020,  the  Commission  adopted  a  Communication  on  the  activation  of  the 
general  escape  clause  of  the  Stability  and  Growth  Pact.    The  clause,  as  set  out  in  Articles 
5(1),  6(3),  9(1)  and  10(3)  of  Regulation  (EC)  1466/97  and  Articles  3(5)  and  5(2)  of 
Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in times of severe 
economic downturn. In its Communication, the Commission shared with the Council its view 
that, given the expected severe economic downturn resulting from the COVID-19 outbreak, 
the  current  conditions  permit  activation  of  the  clause.  On  23  March  2020,  the  Ministers  of 
Finance of the Member States agreed with the assessment of the Commission. The activation 
of  the  general  escape  clause  allows  for  a  temporary  departure  from  the  adjustment  path 
towards  the  medium-term  budgetary  objective,  provided  that  this  does  not  endanger  fiscal 
sustainability in the medium term. For the corrective arm, the Council may also decide, on a 
recommendation  from  the  Commission,  to  adopt  a  revised  fiscal  trajectory.  The  general 
escape  clause  does  not  suspend  the  procedures  of  the  Stability  and  Growth  Pact.  It  allows 
Member States to depart from the budgetary requirements that would normally apply while 
enabling  the  Commission  and  the  Council  to  undertake  the  necessary  policy  coordination 
measures within the framework of the Pact. 

Data  notified  by  the  French  authorities  on  31  March  2020  and  subsequently  validated  by 
Eurostat1 show that the general government deficit in France reached 3.0% of GDP in 2019, 
while  general  government  gross  debt  stood  at  98.1%  of  GDP,  the  same  lavel  as  in  2018. 
According to the 2020 Stability Programme, France plans a deficit of 9.0% of GDP in 2020, 
while debt is planned at 115.2% of GDP.  

The planned deficit for 2020 provides prima facie evidence of the existence of an excessive 
deficit as defined by the Stability and Growth Pact. 

Moreover, the data for 2018 and 2019 imply insufficient progress towards compliance with 
the debt reduction benchmark, which also provides prima facie evidence of the existence of 
an excessive deficit as defined by the Stability and Growth Pact. 

Against this backtround, the Commission has therefore prepared this report, which analyses 
France’s compliance with the deficit and debt criteria of the Treaty. It takes into account all 
relevant  factors  and  gives  due  consideration  to  the  major  economic  shock  linked  to  the 
COVID-19 pandemic.  

1 

https://ec.europa.eu/eurostat/documents/2995521/10294648/2-22042020-AP-EN.pdf/6c8f0ef4-6221-1094-

fef7-a07764b0369f 

1 

 
 
 
                                                           
2. 

DEFICIT CRITERION 

Based  on  the  2020  Stability  Programme,  France’s  general  government  deficit  in  2020  is 
expected to reach 9.0% of GDP, above and not close to the Treaty reference value of 3% of 
GDP. 

The planned excess over the Treaty reference value in 2020 is exceptional, as it results from a 
severe economic downturn. Specifically, while the measures adopted to counter the COVID-
19  pandemic  amount  to  1.9%  of  GDP,  the  deterioration  of  the  macroeconomic  situation  is 
expected  to  contribute  5.3  percentage  points  of  GDP  to  the  planned  deficit.  Taking  into 
account  the  impact  of  the  COVID-19  pandemic,  the  Commission  2020  spring  forecast 
projects a contraction of real GDP in 2020 by 8.2%, leading to a general government deficit 
of 9.9% of GDP. The deficit-increasing effect of the measures adopted to assuage the effects 
of the pandemic is the same as in the government’s plans..  

The  planned  excess  over  the  Treaty  reference  value  would  not  be  temporary  based  on  the 
Commission 2020 spring forecast, which projects the deficit to remain above 3% of GDP in 
2021. 

In  sum,  the  planned  deficit  for  2020  is  above  and  not  close  to  the  3%-of-GDP  Treaty 
reference value. The planned excess is considered exceptional but not temporary as defined 
by the Treaty and the Stability and Growth Pact. Hence, the analysis suggests that prima facie 
the deficit criterion as defined by the Treaty and Regulation (EC) No 1467/97 is not fulfilled. 

Table 1. General government deficit and debt (% of GDP)  

Note: MLSA refers to the Minimum Linear Structural Adjustment Source: Eurostat, Commission 2020 spring 
forecast 

3. 

DEBT CRITERION  

The  government  debt-to-GDP  ratio  stabilised  at  98.1%  in  2018  and  in  2019.  The  debt-
increasing  effect  stemming  from  the  headline  primary  deficit  and  interest  expenditure  was 
offset  mainly  by  real  GDP  growth  and  the  increase  in  the  GDP  deflator,  both  through  the 
denominator effect, and by a slight debt-reducing impact of stock-flow adjustments.  

Following the abrogation of the excessive deficit procedure in June 2018, France is subject to 
a three-year transition period to ensure sufficient progress towards compliance with the debt 
reduction benchmark. The transition period started in 2018 and will end in 2020. In order to 
ensure  continuous  and  effective  progress  towards  compliance  during  the  transition  period, 

2 

20202021COMCOMDeficit criterionGeneral government balance-3.6-2.9-2.3-3-9.9-4General government gross debt98.098.398.198.1116.5111.9Gap to the debt reduction benchmarkIn EDPIn EDPn.r.n.r.n.r.2.8Change in structural balancen.r.n.r.0.10-1.9n.r.Required MLSAIn EDPIn EDP1.31.93.9n.r.Debt criterion2016201720182019 
 
 
France should respect simultaneously the following two conditions regarding the adjustment 
of the structural balance: 

a.  First, the annual structural adjustment should not deviate by more than ¼% of 
GDP from the Minimum Linear Structural Adjustment (MLSA) ensuring that 
the debt reduction benchmark is met by the end of the transition period;  

b.  Second,  at  any  time  during  the  transition  period,  the  remaining  annual 
structural adjustment should not exceed ¾% of GDP (unless the first condition 
implies an annual effort above ¾% of GDP); 

The notified data show that France did not make sufficient progress towards meeting the debt 
reduction  benchmark  in  2019  (see  Table  1),  as  the  gap  to  the  MLSA  amounted  to  2.0%  of 
GDP.  

The  analysis  thus  suggests  that  prima  facie  the  debt  criterion  is  not  fulfilled  based  on  the 
2019 outturn data. 

4. 

RELEVANT FACTORS  

Article 126(3) of the Treaty provides that, if a Member State does not fulfil the requirements 
under one or both of those criteria, the Commission has to prepare a report. That report must 
also  “take  into  account  whether  the  government  deficit  exceeds  government  investment 
expenditure  and  take  into  account  all  other  relevant  factors,  including  the  medium-term 
economic and budgetary position of the Member State”.  

Those factors are further clarified in Article 2(3) of Regulation (EC) No 1467/97, which also 
provides  that  “any  other  factors  which,  in  the  opinion  of  the  Member  State  concerned,  are 
relevant in order to comprehensively assess compliance with the deficit and debt criteria and 
which the Member State has put forward to the Council and to the Commission” need to be 
given due consideration 

For the apparent breach of the debt criterion, the analysis of the relevant factors is particularly 
warranted  given  that  debt  dynamics  are  to  a  larger  extent  influenced  by  factors  outside  the 
control of the government than is the case for the deficit. This is recognised in Article 2(4) of 
Regulation  (EC)  No  1467/97,  which  provides  that  the  relevant  factors  shall  be  taken  into 
account when assessing compliance on the basis of the debt criterion irrespective of the size 
of the breach. In that respect, at least the following three main aspects need to be considered 
when assessing compliance with the debt criterion given their impact on the debt dynamics 
and  sustainability:  (i)  adherence  to  the  MTO  or  the  adjustment  path  towards  it,  (ii)  the 
implementation of structural reforms, and (iii) the prevailing economic conditions.  

As specified in Article 2(4) of Regulation (EC) No 1467/97, as regards the deficit criterion in 
2020,  since  the  government  debt-to-GDP  ratio  exceeds  the  60%  reference  value  and  the 
double condition is not met - i.e. that the deficit remains close to the reference value and that 
its excess over the reference value is temporary - those relevant factors cannot be taken into 
account  in  the  steps  leading  to  the  decision  on  the  existence  of  an  excessive  deficit  on  the 
basis of the deficit criterion for France. 

In the current situation, a key additional element to take into consideration regarding 2020  is 
the economic impact  of the COVID-19 pandemic, which has a very substantial impact on the 
budgetary situation and  results in  a highly  uncertain outlook. The pandemic has also  led to 
the activation of the general escape clause. 

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4.1. 

 COVID-19 pandemic  

The  COVID-19  pandemic  has  led  to  a  major  economic  shock  that  is  having  a  significant 
negative  impact  throughout  the  European  Union.  The  consequences  for  GDP  growth  will 
depend  on  the  duration  of  both  the  pandemic  and  of  the  measures  taken  by  national 
authorities and at European and global level to slow its spread, protect production capacities 
and  support  aggregate  demand.  Member  States  have  already  adopted  or  are  adopting 
budgetary  measures  to  increase  the  capacity  of  health  systems  and  provide  relief  to  those 
individuals  and  sectors  that  are  particularly  affected.  Significant  liquidity  support  measures 
and  other  guarantees  have  also  been  adopted.  Subject  to  more  detailed  information,  the 
competent statistical authorities are to examine whether those measures entail an immediate 
impact on the general government balance or not. Together with the fall in economic activity, 
those measures contribute to substantially higher government deficit and debt positions. 

4.2  Medium-term economic position including structural reforms 

Since  2016,  real  GDP  in  France  has  been  growing  above  potential,  driven  by  dynamic 
investment  and  an  improving  net  exports  position,  while  private  consumption  remained 
subdued.  Nominal  GDP  growth  picked  up  in  2017  and  remained  robust  in  2018  and  2019 
despite the slow down in economic activity, supported by a higher GDP deflator. Hence, it 
cannot  be  argued  that  macroeconomic  conditions  are  a  mitigating  factor  in  explaining 
France’s lack of sufficient progress towards meeting the debt reduction benchmark in 2019. 

Economic  activity  is  projected  to  be  deeply  affected  by  the  COVID-19  outbreak  and  the 
related containment measures. The Commission 2020 spring forecast projects GDP to decline 
by 8.2% in 2020, with a negative domestic demand contribution to growth by 7.4 percentage 
points  due  to  the  brisk  fall  in  private  consumption  and  investment,  and  also  by  a  negative 
contribution of inventories. In turn, the growth contribution of net exports is expected to be 
broadly  neutral.  The  macroeconomic  outlook  is  marked  by  an  exceptional  degree  of 
uncertainty related to the duration of the pandemic and its economic impact. This a mitigating 
factor in the assessment of France’s compliance with the deficit criterion in 2020. 
In  its  2020  Country  Report2,  the  Commission  assessed  that  France  made  some  progress  in 
addressing the 2019 Country Specific Recommendations. More specifically, France has made 
substantial  progress  in  fostering  the  growth  of  firms,  some  progress  in  addressing  skills 
shortages  and  mismatches,  symplifying  the  tax  system,  undertaking  investments  to  ensure 
energy transition and in improving the digital infrastructure. Limited progress was also made 
in fostering integration on the labour market and ensuring equal opportunities, improving the 
research  and  innovation  performance  and  reducing  red-tape  restrictions.  Finally,  regarding 
fiscal  structural  reforms,  while  France  has  made  limited  progress  in  reforming  the  pension 
system, it has made no progress in further developing and implementing a spending review 
through the Public Action 2022 programme.  

4.3 

 Medium-term budgetary position, including government investment 

The headline deficit increased from 2.3% of GDP in 2018 to 3.0% in 2019, mainly due to the 
statistical impact of the transformation of the tax credit for competitiveness and employment 

2 See Commission Staff Working Document SWD (2020) 509 final, 26.2.2020, "Country Report France 2020. 

Including an In-Depth Review on the prevention and correction of macroeconomic imbalances".   

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(CICE)  into  a  permanent  outright  reduction  of  employer's  social  contributions,  which 
accounted for about 0.9% of GDP. Public investment is estimated to have risen from 3.4% of 
GDP in 2018 to 3.6% in 2019, above the general government deficit in 2019. 

On 13 July 2018, France was recommended to ensure that the nominal growth rate of primary 
government expenditure, net of discretionary revenue measures and one-offs, did not exceed 
1.4%  in  2019  (‘the  expenditure  benchmark’),  corresponding  to  a  structural  adjustment  of 
0.6% of GDP3. Based on outturn data and the Commission forecast, expenditure exceeded the 
benchmark,  with  a  deviation  from  the  recommended  adjustment  path  towards  the  medium-
term  budgetary objective  of 1.0% of GDP in  2019, thus   pointing to  a significant  devation. 
The structural balance registered no improvement in 20194, thus also pointing to a significant 
deviation of 0.6% of GDP. A similar assessment is obtained from looking at 2018-2019 taken 
together.  The  lack  of  compliance  with  the  preventive  arm  requirements  is  an  aggravating 
factor  for the  assessment of France’s prima  facie non-compliance  with  the debt  criterion  in 
2019. 

The  Stability  Programme  provides  information  on  substantial  measures  to  contain  the 
pandemic  and  to  support  the  economy.  It  estimates  the  deficit-increasing  impact  of  those 
support measures at 1.9% of GDP in 2020. They comprise additional healthcare expenditure 
of  EUR  8  billion,  transfers  to  cover  partial  unemployment  schemes  of  EUR  24  billion, 
subsidies under the sectoral compensation fund for SMEs of EUR 7 billion and the creation 
of  an  emergency  fund  of  EUR  2.5  billion.  Moreover,  liquidity  measures  and  public 
guarantees  aimed  to  support  firms,  amount  to  about  EUR  385  billion  (17.1%  of  GDP). 
Provided  more  detailed  information,  the  competent  statistical  authorities  are  to  examine 
whether these entail immediate budgetary impact or not. In any case, the medium-term fiscal 
outlook remains subject to high uncertainty.   

4.4.  Medium-term government debt position 

After steadily increasing since 2013, government debt remained broadly stable between 2016 
and  2018,  at  around  98%  of  GDP,  due  to  persistently  high  general  government  deficits 
recorded over the same period as well as to the relatively low nominal GDP growth in most 
of the years. In 2019, the debt ratio stabilised at 98.1%, reflecting the debt-increasing effect 
stemming from  the primary deficit and, although decreasing, interest  expenditure. This  was 
offset  by  real  GDP  growth  and  the  increase  in  prices  (inflation  effect)  and  by  the  slightly 
debt-reducing impact of stock-flow adjustments. 

According to the Commission 2020 spring forecast, general government debt is expected to 
rise from 98.1% of GDP in 2019 to 116.5% in 2020. 

3  Council  Recommendation  of  of  13  July  2018  “on  the  2018  National  Reform  Programme  of  France  and 

delivering a Council opinion on the 2018 Stability Programme of France” (OJ C 320, 10.9.2018, p. 39) 

4 Outturn data for the headline deficit in 2019 was lower by 0.1% of GDP than in the Commission 2019 autumn 
forecast, when the structural adjustment was projected to be 0.0%. Despite the lower outturn for the deficit in 
2019, the structural adjustment remains at 0.0% of GDP due to the combination of the downward revision of 
potential growth brought about by the severe economic downturn provoked by the COVID-19 outbreak, and a 
revision of the series of the one-off measures in 2017 and 2018.  

5 

 
 
                                                           
The  debt  sustainability  assessment  updated  with  the  Commission  2020  spring  forecast 
confirms that, notwithstanding risks, the debt position remains sustainable over the medium-
term  in  France,  which  takes  into  account  important  mitigating  factors  (including  the  debt 
profile). In particular, while the government debt position has deteriorated as a result of the 
COVID-19  crisis,  the  debt-to-GDP  ratio  in  the  baseline  is  expected  to  be  on  a  sustainable 
(declining) trajectory over the medium term5 (Graph 1).  

Graph 1: Government debt-to-GDP ratio, France, % of GDP 

Source: Commission services. 

4.5 

Other factors put forward by the Member State 

On  14  May  2020,  the  French  authorities  transmitted  a  letter  with  relevant  factors  in 
accordance with Article 2(3) of Regulation (EC) No 1467/97. The analysis presented in the 
previous  sections  already  broadly  covers  the  key  factors  put  forward  by  the  authorities. 
Additional factors not yet mentioned above are the accumulated structural effort, according to 
authorities’ calculations, of around 0.4% of GDP over 2018 and 2019; the restrain in public 
expenditure growth, excluding tax credits and the creation of France Compétences, resulting 
in an average annual increase of ¼ percent points in real terms over 2018 and 2019 as well as 
a decline of the public expenditure-to-GDP ratio by 1.3 percentage points between 2017 and 
2019. 

  5. 

CONCLUSIONS 

5 The baseline is based on the Commission Spring 2020 forecast. Beyond 2021, a gradual adjustment of fiscal 
policy is assumed, consistent with the EU economic and fiscal coordination and surveillance frameworks. Real 
GDP growth is projected according to the so-called EPC/OGWG T+10 methodology. In particular, (real) actual 
GDP  growth  is  driven  by  its  potential  growth  and  affected  by  any  additional  fiscal  adjustment  considered 
(through the fiscal multiplier). Inflation is assumed to converge gradually to 2%. Interest rates assumptions are 
set in line with financial market expectations. Under the adverse scenario, higher interest rates (by 500 bps.) and 
lower GDP growth (by -0.5 pp.), with respect to the baseline, are assumed (throughout the projection horizon). 

6 

758595105115125135201920202021202220232024202520262027202820292030BaselineAdverse scenario 
 
 
 
                                                           
According  to  the  Stability  Programme,  France’s  general  government  deficit  in  2020  is 
planned to increase to 9.0%, above and not close to the 3% of GDP Treaty reference value. 
The  planned  excess  over  the  reference  value  is  considered  to  be  exceptional  but  not 
temporary.  

The general government gross debt stood at 98.1% of GDP at the end of 2019, above the 60% 
of GDP Treaty reference value. France did not make sufficient progress towards meeting the 
debt reduction benchmark in 2019. 

In line with the Treaty and the Stability and Growth Pact, this report also examined relevant 
factors.  

As specified in Article 2(4) of Regulation (EC) No 1467/97, as regards compliance with the 
deficit criterion in 2020, however, since the government debt-to-GDP ratio exceeds the 60% 
reference value and the double condition is not met - i.e. that the deficit remains close to the 
reference  value  and  that  its  excess  over  the  reference  value  is  temporary  -  those  relevant 
factors cannot be taken into account in the steps leading to the decision on the existence of an 
excessive deficit on the basis of the deficit criterion for France.  

As regards compliance with  the debt  criterion  in 2019, the relevant  factors, in  particular (i) 
the  observed  macroeconomic  conditions;  (ii)  some  progress  with  the  implementation  of 
growth enhancing structural reforms in past years, and (iii) the significant deviation from the 
recommended  adjustment  path  towards  the  medium  term  budgetary  objective,  leads  to  the 
conclusion  that  the  debt  criterion  as  defined  in  the  Treaty  and  in  Regulation  (EC)  No 
1467/1997 is not complied with. 

Overall, the analysis suggests that the deficit and debt criterion as defined in the Treaty and in 
Regulation (EC) No 1467/1997 are not fulfilled. 

7