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21st Jun 2021

Brussels increases pressure on Paris to make reforms

  • Paris: 'Little progress' in France's economic reform programme (Photo: Lisa Kline1)

France has made little progress in its attempts to boost competitiveness and restore the viability of its public finances, according to a new report by the European Commission.

The survey, published by the EU executive on Thursday (11 December), is part of the "macro-economic imbalances" procedure aimed at resolving serious problems in a country’s economy and preventing them from spilling-over into other eurozone countries.

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The commission wants France to tackle its deteriorating trade balance and competitiveness. French exports have fallen by 13 percent over the last five years, a problem which the report argues “is rooted in both the low cost and non-cost competitiveness of French exports”.

The EU executive also wants Paris to halt its ever-rising public debt burden which now stands above 90 percent of GDP, and is forecast to hit 98 percent in 2016. But the report expresses frustration that little progress had been made so far.

Lack of headway has been made to reducing France’s tax burden or to improve the sustainability of public finances, commented the commission, adding that “the correction of the excessive deficit and the achievement of the MTO [medium-term outlook] have been postponed.”

“Public expenditures, which represented 57 percent of GDP in 2013, have proved difficult to reduce despite efforts,” the report notes.

It warns that “a more forceful implementation of structural reforms could boost further activity” in France’s stagnating economy, which has grown by 0.3 percent so far this year and is projected to expand by a mere 0.7 percent in 2015.

The OECD think tank has estimated that the reforms that have either been undertaken or announced by the French government will eventually lead to a 1.6 percent increase in GDP over the next five years and by 3.7 percent over the next decade.

The latest commission findings are non-binding but add to political pressure on Paris.

Together with Italy and Belgium, French president Francois Hollande's government was recently given until March 2015 to show that it is meeting its economic reform promises, with the EU executive warning that failure to implement further cuts could leave it with no alternative but to impose sanctions which could, theoretically, amount to 0.2 percent of GDP.

Having originally been instructed by the commission to bring its deficit below 3 percent in 2013, France was given a two-year extension to 2015 only for finance minister Michel Sapin to announce this summer that the target would not be reached before 2017.

France’s deficit is poised to increase from 4.1 percent to 4.4 percent this year, before falling back to the 2013 level of 4.1 percent in 2015.

The government will also miss its commission-mandated target to achieved a structural balance to a structural deficit of 0.5 % of GDP, would only be reached by 2019.

However, Hollande’s government has so far refused to enact further cuts on top of the €50 billion it has planned over the next three years, although the commission says that public spending will still increase by 1.1 percent in 2015.

Meanwhile, Slovenia was given a more positive report card by the commission as the country gradually recovers from a banking crisis which almost forced it into an EU-funded bailout.

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