The latest EU Council opinion on the French stability programme spells out the need for corrective action.
For some background remarks on economic policy coordination, you can read the blog post EU: Useful stability and convergence programmes? (3 June 2010).
Stability programme France
The Council’s assessment of the French stability programme has been published in the Official Journal of the European Union (OJEU):
COUNCIL OPINION on the updated stability programme of France, 2009-2013; OJEU 29.5.2010 C 140/6
The Council examination on 26 April 2010 of the updated stability programme of France, which covers the period 2009 to 2013, began with the following general remarks:
Economic activity in France lost its dynamism in the course of 2008 and declined sharply in the fourth quarter and in the first quarter of 2009. From the second quarter of 2009, it picked up again, supported by stimulus measures in France and in neighbouring countries. One prominent challenge for economic policy is the situation of public finances. Specifically, since 2002 the deficit in France has been either above or close to the 3 % of GDP threshold, mainly a reflection of insufficient consolidation efforts. In this context, France was under an excessive deficit procedure between 2002 and 2007, and received a policy advice from the Commission in May 2008. Following the notification of a deficit above the 3 % of GDP threshold in 2008, a new excessive deficit procedure was launched in February 2009, which foresees the correction of the excessive deficit by 2013. Other challenges include addressing the supply-side weaknesses which lead to insufficient external competitiveness, as well as increasing labour utilisation.
After a detailed assessment and also in the light of the recommendation under Article 126 TFEU of 2 December 2009, the Council invited France to:
(i) use, throughout the programme period, windfalls related to an improvement of the macro-economic and fiscal outlook, as well as the implementation of all envisaged tax measures to accelerate the deficit reduction and the decline of the gross debt ratio back towards the 60 % of GDP reference value;
(ii) stand ready to adopt further consolidation measures, in case risks related to the fact that the macroeconomic scenario of the programme is more favourable than the scenario underpinning the Article 126(7) Recommendation materialise, and further specify the measures necessary to ensure an average annual fiscal effort of above 1 % of GDP over the period 2010-2013 and to achieve a correction of the excessive deficit by 2013;
(iii) ensure that the budgetary framework is reinforced, in particular on the expenditure side, and effectively supports the achievement of the outlined medium-term fiscal plans at all sub-government levels, as planned by the French government.
France is also invited to provide more information on the broad measures underpinning the envisaged consolidation in the outer years of the programme, at the latest in the EDP [excessive deficit procedure] chapters of the forthcoming stability programme updates.
The financial crisis, the economic downturn and the subsequent battering of member states’ budgets have led to a new culture of crisis summits, not only for the European Union as a whole, but significantly for the eurozone.
There is need for a critical evaluation of how much the unofficial summits of the eurozone leaders and the unofficial Euro Group have achieved in terms of sustainable solutions. This culture of more or less chaotic “government by communiqés” seems to have led to deteriorating standards of transparency.
What would be achieved by more intergovernmental arrangements outside the treaty framework, if that is what “economic government” in the euro area means?
France has a long history of trying to create Europe in its own image, but the country has traditionally been short on accepting sustainable institutional underpinnings for its ambitions for Europe.
The EU already has the Stability and Growth Pact. Leading by example would be a good start for France, ahead of credible European level economic government.