Beoordeling Europese Commissie stabiliteitsprogramma's Frankrijk en Italië (en)

The examination of the updated stability programmes [1] of France and Italy shows that progress towards their medium-term objective (MTO) of a balanced budget needs to be more ambitious. This will require France to substantially cut its public expenditure - currently among the highest in the European Union - faster than envisaged. Structural reforms will also be crucial to raise potential growth and sustain the budgetary consolidation process. Italy succeeded in bringing its budget deficit to well below 3% in 2007. It should build on that result to reach a balanced budget within the programme period and to put its public debt firmly on a descending path. Both countries are at medium risk concerning the long-term sustainability [2] of their public finances, given their current debt levels and the adjustment which still needs to be completed towards the MTO.

"France is well advised to reduce its deficit faster, in order to give itself a safety margin and improve the long-term sustainability of its public finances. Concrete measures to curb expenditure are crucial to deliver its ambitious expenditure-reduction plan as are the structural reforms that the government intends to pursue to increase the growth potential. Italy largely met its target to correct the deficit below 3% in 2007, but needs to stay the course on budgetary consolidation to put its debt firmly on a decreasing path and direct the resources currently absorbed by the interest expenditure towards growth-enhancing measures," said Economic and Monetary Affairs Commissioner Joaquín Almunia.

Today the Commission has assessed the updated Stability Programmes of France and Italy. It also assessed the Convergence Programmes of Romania and Slovakia (see IP/08/107). This follows the first group of programmes examined on 23 January. All are expected to be then discussed at the 12 February EU Finance Ministers Council. The remaining programmes will be assessed by the Commission in February.

FRANCE

France submitted a new update of its stability programme on 30 November 2007, covering the period 2007-2012.

The pace of budgetary consolidation and debt reduction slowed down in 2007 and is much less ambitious for 2008 and the coming years than planned in the 2006 update of the stability programme (see tables attached for growth and budgetary projections of France and Italy). The envisaged consolidation is back-loaded and the achievement of the MTO of a balanced budget through an expenditure-based adjustment is postponed from 2010 to 2012. Moreover, even this adjustment path is subject to risks because it relies on favourable macroeconomic assumptions and on expenditure cuts and structural reforms that have yet to be further specified and tested.

The French authorities have adopted measures to curb public expenditure in 2008, notably in social security; they have broadened the coverage of expenditure rules and embarked on structural reforms. But they have yet to specify the measures that will deliver, during the programme period, the proposed cut of 3 percentage points of GDP in the public expenditure ratio, which is currently over 53%, one of the EU's highest and well above the euro-area average of 46.5%.

Structural reforms will also be crucial for France to increase its potential growth and sustain the budgetary consolidation process.

In view of the debt and deficit levels and the projected increase in age-related expenditure, France appears to be at medium risk with regard to the sustainability of public finances.

To conclude, in view of the Commission assessment and also in the light of the April 2007 Eurogroup orientations for fiscal policies, France is invited to: (i) considerably strengthen the pace of budgetary consolidation and debt reduction, so as to ensure that a safety margin against breaching the 3% deficit threshold is attained more rapidly than planned and that the MTO is reached by 2010 in order to decisively contribute to the improvement of the long-term sustainability of public finances; (ii) effectively enforce existing expenditure rules and continue to extend their coverage to encompass all sub-sectors of the general government in order to guarantee that its ambitious multi-annual expenditure reduction plans are achieved, and (iii) make progress with structural reforms, so as to increase potential growth and curb public expenditure.

ITALY

Italy submitted a new update of its stability programme on 30 November 2007, covering the period 2007-2011.

The programme is consistent with a correction of the excessive deficit in 2007. The programme puts the deficit figure at 2.4%, but the final outcome is expected to turn out more positive. It could have been better still if the better-than-expected budgetary developments had been fully used for consolidation.

Italy would be well advised to use the better 2007 starting position to progress faster, in 2008, towards its medium-term objective of a balanced budget. Unless the budgetary target is strengthened, the structural balance risks deteriorating this year. The programme also provides little information on the composition of the fiscal consolidation strategy after 2008, and the measures aimed at curbing expenditure developments have yet to be spelled out. This puts at risk the achievement of the MTO by the end of the programme period and may mean that it is not possible to secure a sufficient reduction of the debt ratio over the programme period.

Italy is at medium risk with regard to the sustainability of its public finances, reflecting its high level of government debt and the current budgetary position. This assessment assumes the full implementation of the pension reforms, notably the planned periodical actuarial adjustment.

In view of the Commission assessment, and also in the light of the recommendation under Article 104(7) of 28 July 2005 as well as the April 2007 Eurogroup orientations for fiscal policies, Italy is invited to: (i) building on the positive results of 2007, strengthen the budgetary target for 2008, so as to secure an ambitious adjustment; and pursue the planned fiscal consolidation thereafter with sufficient measures to ensure adequate progress towards the MTO, so as to achieve it by the end of the programme period and thus accelerate the pace of debt reduction; (ii) in view of the very high level of government debt, fully implement the pension reforms, notably the planned periodical actuarial adjustment, so as to avoid significant increases in age-related spending; and (iii) continue the effort to improve the quality of public finances by focussing on their composition, increasing the transparency of the budgetary process, spelling out the budgetary strategy within a longer time perspective and effectively implementing mechanisms to monitor and control expenditure.

The country-specific Commission recommendations for a Council opinion on each programme are available at:

http://ec.europa.eu/economy_finance/sg_pact_fiscal_policy/sg_programmes9147_en.htm

FRANCE

Comparison of key macroeconomic and budgetary projections

ITALY

Comparison of key macroeconomic and budgetary projections

[1] According to Council Regulation (EC) No 1466/97 on the strengthening of budgetary surveillance and the surveillance and coordination of economic policies (as amended by Regulation No 1055/2005), Member States must submit updated macroeconomic and budgetary projections every year. Such updates are called stability programmes in the case of countries that have adopted the euro, and convergence programmes in the case of those that have not yet done so. This regulation is also referred to as the 'preventive arm' of the Stability and Growth Pact.

[2] The analysis of long-term sustainability of public finances takes into account the current level of debt, the current budget deficit/surplus and the expected costs arising from an ageing population, assuming no pension policy changes.