52000AG0418(01)

Council Opinion

of 13 March 2000

on the updated stability programme of France, 2000 to 2003

(2000/C 111/01)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies(1), and in particular Article 5(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 13 March 2000, the Council examined the update of the stability programme of France, which covers the period up to 2003. From a formal point of view, the Council notes that the French authorities presented the Programme pluriannuel de finances publiques, 2001-2003, as the update of its stability programme, but regrets, particularly in view of the Council's declaration of 15 March 1999, that such a programme does not publicly and specifically identify itself as a stability programme and calls on France to entitle its document "stability programme".

The Council notes with satisfaction that the French general government deficit for 1999 was lower than projected in the initial stability programme. This outcome was mainly the result of buoyant tax revenue. However, the Council also notes that the norms for the evolution of government expenditure in real terms, which had been established in the initial programme, have not been fully met. This was partially the result of lower-than estimated prices, but also of higher than projected expenditure, at current prices, in the health insurance and local authorities' sectors.

The updated stability programme assumes a real GDP growth of at least 3 % in 2000. For the period 2001 to 2003, macroeconomic projections are presented for two secenarios (cautious and favourable), according to which growth is expected to be within the band 2,5 % to 3 %. The Council notes that the lower end of the range presents a GDP projection close to grwoth potential; however it considers that given the latest developments and short-term perspectives, the higher growth scenario may be seen as a realistic basis for economic policy.

In line with its opinion(2) on the initial stability programme, the Council considers as appropriate the budgetary strategy based on control of expenditure in real terms allowing a reduction of government expenditure realtive to GDP; in particular this approach addresses the problem of relatively high government expenditure in France and the impact it may have on economic efficiency. However, practical management of such a strategy may become difficult in circumstances of price developments below expectations or if expenditure targets are overshot in specific sectors, as was the case in 1999. The Council considers that the effectiveness of the strategy of the programme is highly dependent on prompt corrective measures in the event of any significant slippage from targets in specific sectors. The Council recommends that, whenever possible, such corrective measures should be implemented within the same year, or at the latest in the following year.

The Council notes that the French economy is currently in a favourable cyclical position. The Council also notes that the programme update already includes a tax reduction programme. The Council considers that in case of a wider budgetary room of manoeuvre, either as a result of higher growth or for other reasons, inlcuding a 1999 deficit ratio lower than the estimate of 2,1 % of GDP mentioned in the programme, the opportunity should be taken to reduce the deficit more quickly. This would allow government accounts to be in balance in 2003 and the fulfilment of the Stability and Growth Pact maybe even this year, or in 2001 with a more comfortable margin.

The Council considers that the underlying budgetary position which corresponds to the targeted deficit ratios from 2001 would provide a sufficient safety margin to prevent the deficit from breaching the 3 % of GDP threshold under normal cyclical conditions; the medium-term target for the government finances of the updated stability programme is therefore in conformity with the provisions of the Stability and Growth Pact. Furthermore, the Council considers that the updated stability programme is consistent with the Broad Economic Policy Guidelines.

(1) OJ L 209, 2.8.1997, p. 1.

(2) OJ C 124, 5.5.1999, p. 2.