Restoring public finances: the French government slammed for its lack of ambition

Europe 1 with AFP / Photo credit: LOIC VENANCE / AFP 16:14 pm, September 25, 2023

Although more voluntarist, the new trajectory set by the government to reduce the debt of the France by 2027 remains "unambitious" and is based on "optimistic" growth assumptions, said Monday the High Council of Public Finances (HCFP). This independent body placed with the Court of Auditors does not spare its criticism in its opinion on the new version of the draft law of programming of public finances 2023-2027, which accelerates the objectives of the government in terms of debt reduction and deficit reduction by the end of the five-year term.

Lack of credibility

"The planned public finance trajectory still lacks credibility, in our opinion," HCFP President Pierre Moscovici told a press conference. "This trajectory seems unambitious compared to European commitments, even if it is a little better than in the initial project," added the head of this independent body placed at the Court of Auditors. Rejected in its initial version by deputies a year ago, the bill is on the menu of the extraordinary session of the National Assembly on Wednesday and Thursday, a beginning of examination that will coincide with the presentation to the Council of Ministers of the draft budget for 2024.

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Unless it finds sufficient support on the opposition benches, the government could this time resort to Article 49.3 of the Constitution to adopt, without a vote, the text on which it believes the obtaining of billions of euros of European funds from the recovery plan depends. In a letter addressed to the general rapporteur of the budget Jean-René Cazeneuve (Renaissance), the Minister of Economy and Finance Bruno Le Maire estimates that the payment of 17.8 billion euros could be blocked in 2023 and 2024, and that 28 billion euros would be at risk until 2026.

"Late" recovery

The government repeats over and over again its determination to restore public finances that have deteriorated sharply under the effect of the health and energy crises. His draft law on the programming of public finances plans to reduce the public deficit from 4.8% of gross domestic product (GDP) in 2022 to 2.7% in 2027, below the European objective of 3%, in a context where the debt burden is exploding - at the risk of soon exceeding the annual budget of National Education, which is the main budget of the State.

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For Pierre Moscovici, the return of the public deficit to the European nails at the end of the five-year term is "late" while this objective has already been achieved by some euro zone countries such as Germany or will soon be achieved by others. The debt would fall by just under 4 points, to 108.1% of GDP, still well above the European limit of 60%. In its opinion, the HCFP stresses that the recovery of public finances is all the more "fragile" as its trajectory is based on macroeconomic assumptions deemed "optimistic" and on "a demanding spending target (...) whose respect is not necessarily guaranteed today".

"A categorical imperative"

If the government's 1% growth forecast for 2023 is considered "plausible", that announced for 2024, although revised down by 0.2 points to 1.4%, is "high", higher than the consensus of economists (0.8%). "It assumes that the tightening of credit conditions has already produced most of its effects," notes the agency in reference to the monetary tightening carried out at a forced march by the European Central Bank (ECB) to control inflation.

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The assumptions used to justify the growth of 1.7% expected in 2025 and 2026, then 1.8% in 2027 are also considered "favourable", such as maintaining a high level of business investment, the positive contribution of foreign trade or the continuous decline in the household savings rate that would support consumption. "Debt reduction is a categorical imperative" in order to "free up room for manoeuvre" allowing the France to face new economic shocks and invest in the ecological transition, insisted Pierre Moscovici.