France has promised to bring its public deficit under 3% but the Court of Auditors doubts it can be done.
There was no room for optimism in the latest annual report from the French court of auditors on France’s ability to bring its public deficit under 3% of GDP.
Without significant economic growth, and therefore little tax revenue, the state could be left with a revenue gap of up to €6 billion, the Court said in its report, presented on Tuesday (11 February).
As a result, filling the deficit gap might be harder than planned. Under its commitment to the European Commission, France has promised to bring its deficit to 4.1% of GDP in 2013, 3.6% at the end of 2014 and below 3% in 2015.
Didier Migaud, the president of the Court of Auditors, emphasised the “considerable effort” made by France in 2013, which focused “mainly on new revenues”. However he warned that “there is a real risk that the public deficit exceeds the latest government’s forecast”.
For 2014, the observations are a little different. The 3.6% target deficit is not ensured at this stage, Migaud explained.
For the auditors, France’s performance is sub-standard. The 2013 French deficit “remains substantially higher than the Eurozone average,” Migaud underlined citing the latest EU Commission forecasts.
In its 2013 report on public finances, the court of auditors had already pointed to the sluggish growth of the country. The government’s 3.7% deficit forecast had already then been deemed unachievable.
France was supposed to bring its deficit under 3% in 2013 but was allowed a two year delay by the European Commission in exchange for an effective cost-reducing policy. The EU executive gave the same delay to Spain, Slovenia and Poland, while the Netherlands and Portugal were given a one-year delay.
The president of the Court of Auditors says it will be difficult to renegotiate a new postponement.
“You understand, any further delay in consolidating the finances would result in a substantial divergence from our European neighbours, a new significant debt and would seriously damage France’s financial credibility.”
Speeding up the reforms
The European Commission seems to have no illusions about France's ability to reduce its excessive deficit. The EU executive’s latest estimates put forward a 4.1% public deficit in 2013, 3.8% in 2014 and 3.7% in 2015.
The commissioner in charge of economic affairs, Olli Rehn, said on 10 February that the deadline given to France and others is “for serious economic reforms”.
“We observe that half of it is implemented. That is the extension of he deadline for the correction of the excessive deficit even though many members such as France and Italy can accelerate structural reforms.”
The European Commission signalled on 3 May 2013 that the bleak economic outlook allowed some scope for slowing the pace of austerity in the eurozone.
France, Spain and the Netherlands were all given leeway to meet their budget deficit reduction targets as a result.
In exchange, countries are expected to table structural reform plans to reduce their deficits in the long term.