Brussels, 02/04/2003 (Agence Europe) - As expected, on Wednesday, the Commission adopted a report on government finances in France as a first step of the Excessive Deficit Procedure included in the treaty. This initiative follows data for 2002 provided by Eurostat, showing that the general government deficit reached 3.1% of GDP in 2002, thus breaching the 3% of GDP reference value of the Treaty. The report assesses recent and current budgetary developments in France and reviews short-term prospects in the light of overall economic conditions and policy action taken by the government. The Economic and financial Committee will give an opinion on its content in two weeks, in a way that the Commission is able to present a recommendation to the Council on the possible existence of an excessive deficit. Following this, the Council will make a decision on the recommendation and outline on possible correction measures to be taken by France.
The report adopted on 2 April is purely factual and analytical and does not, at this stage, outline any recommendations but points to the breach of the 3% of GDP threshold, which does not result from an unusual event outside the control of the French authorities or a severe economic downturn. Moreover, the breach of the 3% of GDP threshold will probably not be temporary: the French authorities project a further increase in the general government deficit in 2003, to 3.4% of GDP. In 2003, the general government gross debt is also projected by the French authorities to rise above the Treaty reference value of 60% of GDP.
According to the report, the deterioration in the 2002 budgetary position results mainly from (1) the impact of adverse cyclical developments; (2) a slippage in general government expenditures, particularly in the State and the social security sectors; (3) the implementation of tax cuts worth some ½ percentage point of GDP; and (4) the incorporation in the deficit of a capital transfer to the corporation RFF (Réseau Ferré de France). According to Commission calculations, roughly two-thirds of the deterioration in the budgetary position of France in 2002 are due to an increase in the cyclically adjusted deficit, the remaining proportion reflecting the impact of the weakness in economic activity. The breaching of the 3% of GDP threshold in 2002 is also due to the fact the budgetary consolidation process came practically to a halt as from 1999, leaving the French government finances in a vulnerable position.
According to the most recent forecasts by the French authorities, the general government deficit will increase further in 2003, reaching 3.4% of GDP in 2003. Moreover, as a consequence of the increase in the deficit and of the weakness in GDP growth, the debt ratio will continue to increase rapidly, and will very likely breach the 60% of GDP Treaty reference value in 2003. France is currently subject to a recommendation adopted by the Council in January 2003 giving early warning with a view to prevent the occurrence of an excessive deficit in 2003. So far, France has not taken sufficient measures to reduce the cyclically adjusted deficit in 2003.