Blog Post

French public finances: Time for change

For the past thirty years, France has consistently failed to manage its public finances. The debt-to-GDP ratio has inched upwards year after year, budgetary policies have been unfailingly pro-cyclical, and the country has squandered most of its credibility with EU partners because of repeatedly unkept promises. The time, however, has now come and budgetary issues […]

By: and Date: May 3, 2011 Topic: European Macroeconomics & Governance

For the past thirty years, France has consistently failed to manage its public finances. The debt-to-GDP ratio has inched upwards year after year, budgetary policies have been unfailingly pro-cyclical, and the country has squandered most of its credibility with EU partners because of repeatedly unkept promises.

The time, however, has now come and budgetary issues will take centre-stage in the next presidential elections. The reasons for this are twofold. The first is that, in order to regain control of its finances, France will have to carry out unprecedented budgetary adjustments – to the tune of 4% of GDP (80 billion euros) over five years. The second reason is that France’s external creditors will no longer tolerate recurrent deficits, and the pressure from European budgetary surveillance will be stronger.

These two constraints will apply to all presidential candidates. Only the pace and composition of the adjustment will be within their power: the target is not really theirs to define. It would therefore be desirable to see the presidential campaign focus on the key choices for the consolidation strategy: the balance between spending cut and tax increases, and the precise nature of these adjustments.

This situation calls for a new approach to policymaking that would delineate between unavoidable budgetary discipline and what results from policy preferences; align budgetary policy with economic objectives; and help regain lost credibility.

The reform proposal presented by the French government aims to require annual budgetary laws to be consistent with framework laws (lois-cadres) establishing multiannual guidelines for public finances. The content of these laws, the period they cover and how their provisions apply to annual budgets should be determined by what the French call an “organic law” (procedural laws that stand below constitutional level but above standard legislation).

This proposal offers an opportunity to reflect on a much-needed (and much-delayed) national definition of fiscal responsibility. With the presidential campaign on the horizon, the timing for such a reflection is perhaps not ideal. But the issue will not disappear after the elections, and it would be a shame for tactical considerations to completely overshadow the debates.

The government proposal is based on a report prepared by former IMF head Michel Camdessus. It addresses shortcomings of past budget practices but requires amendments on several points.

First, the proposal does not set a time frame for the consolidation of public finances. The risk is that governments will stick to the minimum and that public debt will remain at high levels. France should set itself a debt target to be reached in twenty years’ time, a long enough period for the adjustment not to weigh excessively on growth.

Second, the time period covered by the multiannual budgetary planning should be specified, which the proposal does not do. A recent parliamentary report recommends three years. We would prefer the multiannual planning horizon to coincide with the five-year legislative and presidential terms. The passing of a multi-year law at the beginning of the term would set guidelines for fiscal policy in the remaining years. This would facilitate evaluation by the citizens of each administration’s budgetary record.

Thirdly, there is a need to correct past deviations. Over five years, slippages and good surprises can lead to significant divergence from planned trajectories. It is thus important to create a notional control account, so that beyond a given threshold differences between planned and realised outcome can be compensated for in the following years. Such a procedure would allow enough flexibility with respect to the cycle, but would avoid persistent slippages.

Lastly, the reform should provide for the creation of an independent Council for Fiscal Responsibility, with no executive power but that would be entrusted with carrying out budgetary projections, providing the economic forecasts used for the budget, and evaluating policies. This would enhance the quality of projections and evaluations, provide greater transparency in public debates, and ensure that annual decisions and long-term objectives are consistent.

It is high time to rethink France’s fiscal framework: it is key for regaining the economic independence underpins policy choices.

Translation of an op-ed in Les Echos of 5 May 2011. This op-ed is based on the authors’ contribution to Quelles  réformes pour sauver l’Etat? edited by Jean-Paul Betbèze and Benoît Coeuré, Cercle des économistes / Descartes / PUF, Paris, forthcoming May 2011.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.


Warning: Invalid argument supplied for foreach() in /home/bruegelo/public_html/wp-content/themes/bruegel/content.php on line 449
View comments
Read article More on this topic More by this author

Blog Post

The latest European growth-rate estimates

The quarterly growth rate of the euro area in Q1 2018 was 0.4% (1.5% annualized), considerably higher than the low growth rates of the previous two quarters. This blog reviews the reaction to the release of these numbers and the discussion they have triggered about the euro area’s economic challenges.

By: Konstantinos Efstathiou Topic: European Macroeconomics & Governance Date: May 20, 2019
Read about event More on this topic

Upcoming Event

May
21
10:30

Europe after Sibiu: Towards differentiated integration?

A comprehensive follow-up to the Informal European Council in Sibiu, Romania.

Speakers: Andrew Duff, John Erik Fossum, Paweł Karbownik and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event More on this topic

Upcoming Event

May
28
12:30

The Ukrainian economy: the way forward after a year of political turbulence

What can Ukraine do to foster economic growth? How can the EU and other international partners help Ukraine with this process?

Speakers: Olena Carbou, Marek Dabrowski, Elena Flores, Ivan Miklos and Hlib Vyshlinsky Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article Download PDF More by this author

Book/Special report

Bruegel annual report 2018

The Bruegel annual report provides a broad overview of the organisation's work in the previous year.

By: Bruegel Topic: Energy & Climate, European Macroeconomics & Governance, Finance & Financial Regulation, Global Economics & Governance, Innovation & Competition Policy Date: May 16, 2019
Read about event More on this topic

Past Event

Past Event

CANCELLED: Future of taxation in the EU

Due to a previously unannounced air traffic controllers strike in Belgium, the Prime Minister Morawiecki is unable to land in time for the event. We apologise for any inconvenience.

Speakers: Marie Lamensch, Mateusz Morawiecki and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 16, 2019
Read article More on this topic

Blog Post

Germany’s even larger than expected fiscal surpluses: Is there a link with the constitutional debt brake?

Germany is having a political debate on the adjustment of its budgetary plans due to revised forecasts, and an academic debate on the debt brake. Yet, since 2011, general government revenues and surpluses have been systematically and significantly higher than forecast. The German surplus reached 1.7% of GDP in 2018. This bias did not exist from 1999-2008 before the introduction of the debt brake. While the IMF also got its forecasts of German surpluses wrong, the extent of the bias is larger for the German government’s forecasts. These data suggest that the political debate should focus on the debt brake and its implementation rather than on how to close the budgetary ‘hole’.

By: Catarina Midoes and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: May 13, 2019
Read about event More on this topic

Upcoming Event

Jun
17
12:30

Role of national structural reforms in enhancing resilience in the Euro Area

At this event Gita Gopinath, Chief Economist at the IMF will discuss the role of national structural reforms in enhancing resilience in the Euro Area

Speakers: Maria Demertzis, Gita Gopinath and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More by this author

Blog Post

Spitzenkandidaten visions for the future of Europe's economy

What are the different political visions for the future of Europe’s economy? Bruegel and the Financial Times organised a debate series with lead candidates from six political parties in the run-up to the 2019 European elections.

By: Giuseppe Porcaro Topic: European Macroeconomics & Governance, Global Economics & Governance, Innovation & Competition Policy Date: May 8, 2019
Read article More on this topic More by this author

Opinion

When facts change, change the pact

“When facts change, I change my mind,” John Maynard Keynes famously said. With long-term interest rates currently near zero, the European Union should reform its fiscal framework to allow member states to increase their debt-financed public investments.

By: Jean Pisani-Ferry Topic: European Macroeconomics & Governance Date: May 1, 2019
Read article More on this topic More by this author

Blog Post

EU enlargement 15th anniversary: Upward steps on the income ladder

Since their accession to the EU 15 years ago, the incomes of most central Europeans have increased faster than the incomes of longer-standing members and, thereby, they moved upwards in the EU distribution of income. Yet the very poorest people have not progressed in some countries.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: April 30, 2019
Read article Download PDF More on this topic

Working Paper

What drives national implementation of EU policy recommendations?

The authors use a newly-compiled dataset to investigate whether and why European Union countries implement the economic policy recommendations they receive from the EU.

By: Konstantinos Efstathiou and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: April 25, 2019
Read article Download PDF More by this author

External Publication

European Parliament

Taking stock of the Single Resolution Board: Banking union scrutiny

The Single Resolution Board (SRB) has had a somewhat difficult start but has been able to learn and adapt, and has gained stature following its first bank resolution decisions in 2017-18. It must continue to build up its capabilities, even as the European Union’s banking union and its policy regime for unviable banks continue to develop.

By: Nicolas Véron Topic: European Macroeconomics & Governance, European Parliament, Testimonies Date: April 18, 2019
Load more posts