Brussels, 29/03/2016 (Agence Europe) - The public deficit stood at 3.5% of GDP in 2015, thanks to a reduction in local expenditure and the accommodative monetary policy of the ECB, according to data published by the French statistical institute (INSEE) on Friday 25 March.
“This is the first time for a long time that France has not simply achieved the targets set for it, but has improved on them”, stressed French Finance Minister Michel Sapin. By bringing the deficit down from 4.0% of GDP in 2014 to 3.5% in 2015, France has outperformed the trajectory it negotiated in March 2015 with the European Union, when it was granted a further grace period of two years to bring its public deficit below the 3% of GDP mark. The trajectory officially assigned to the French government is as follows: following GDP of 4% in 2015, 3.4% in 2016 and 2.8% in 2017 (see EUROPE 11271).
This considerable improvement of the public finances is “predominantly” due to the decrease in investments by the local administrations, according to INSEE, which highlights a drop of 10% in these investments, due to the election cycle, amongst other things. It can also be explained by a further 4.5% drop in the interest on the French debt, which is benefiting from the quantitative easing operation for the buyback of sovereign securities that the ECB launched in March 2015.
According to INSEE, growth stood at 1.2% of GDP last year. The French authorities predict growth of 1.5% in 2016, whilst the European Commission puts it at 1.3%. Public debt should have peaked at 95.7% of GDP in 2015, compared to 95.3% the previous year. Public expenditure, which has been on a constant downwards curve since 2013, remains at a high level compared to the European average, standing at 55.3% of GDP. Compulsory levies have fallen, from 44.8% of GDP in 2014 to 44.5%, thanks to the CICE tax credit for companies and reductions in household income taxes.
On Twitter, European Commissioner for Economic and Financial Affairs Pierre Moscovici described the figures unveiled on Friday as a “positive signal”. He said that the commitment to going back below the threshold of 3% of GDP is “achievable”, if the efforts are maintained in 2016 and 2017.
For 2016, this appears to be fairly easy for France to achieve, at least in terms of nominal public deficit. Speaking in Brussels on Wednesday 23 March, French Prime Minister Manuel Valls confirmed that his country would stick to its budgetary commitments (see EUROPE 11518).
The stability programme, which Paris will submit to the European Commission by the end of April, is nonetheless expected to include the new expenditure announced in early 2016, such as the employment and training plan, emergency aid to farmers and support for civil servants. This expenditure is to be offset by additional savings in a context of inflation which is still lower than anticipated. In its draft budget for 2016, the French government already planned savings of €16 billion for 2016 (€5.1 billion for the state, €3.5 billion for the local authorities and €7.4 billion for social security) (see EUROPE 11401). (Original version in French by Mathieu Bion)