The main orientations of the Stability Programme 2014-2017 were presented after the Council of Ministers. They include the Responsibility and Solidarity Pact, the €50 billion savings programme and the maintained objective to reduce the public deficit by 3% in 2015.
The stability programme sets the Government’s economic and budget roadmap for the next three years. Such multi-annual forecasts are now required to be drawn up by all Member States of the Eurozone. After presentation to the Council of Ministers, this text was put to the French National Assembly for a vote on 29 April 2014, before submission to the European Commission. The European Commission will issue its recommendations at the end of May/beginning of June.
Background: after five years with a lifeless economy, business activity is picking up in France
“We are now at a critical stage”, explained Michel Sapin, Minister of Finance and Public Accounts. After five years with a lifeless economy, or in other words a no-growth economy, business activity in France regained its pre-recession levels (before 2008) at the end of 2013.
In 2013, France recorded low growth (0.3%), but encouraging signs appeared at the end of the year – recovery in investment and private sector employment, for the first time in two years. Annual growth is now in the region of 1%. “Obviously, 1% is not sufficient”, recognised the Minister. Unemployment is still high, in particular for young adults, and our economy continues to not be as competitive its partners. “It is consequently necessary to speed up the recovery, which is the very purpose of the Responsibility and Solidarity Pact.”
Twofold strategy: consolidating our economy and continuing the public deficit turnaround
The Government has a twofold strategy:
consolidating our economy and its capacity for creating employment, while making targeted efforts for consumers with the most modest purchasing power: this involves the introduction of the Responsibility and Solidarity Pact. It will be implemented up until 2017 and will help increase business activity by half a percentage point and create almost 200,000 new jobs.
continuing the public deficit turnaround to regain room for manoeuvre and reduce the public deficit to recover sovereign power, while guaranteeing our funding priorities (education, justice and security): this involves the introduction of the €50 billion savings plan for the 2015-2017 period.
“We can’t have one without the other; if we do not control public spending, a sustainable recovery will not be possible”, explained Michel Sapin. By restoring companies’ margins, by improving their competitiveness and by creating a boost in economic confidence, this strategy will help companies to export, invest and recruit more, and households to support the economy.
In total, growth should reach 1% in 2014 and then subsequently speed up to 1.7% in 2015 and 2.25% in 2016-2017.
An essential requirement: reduce the rate of the tax and social security burden
With the implementation of the Responsibility and Solidarity Pact, and as a result of €50 billion in savings, the share of public spending and the tax and social security burden in GDP will fall from 2015 to 2017.
The slowdown in public spending in line with inflation with help reduce public spending to 53.5% of GDP in 2017, which corresponds to pre-recession levels.
This choice is demanding and new. This will help continue deficit reduction without introducing new taxes: between 2014 and 2017, the rate of the tax and social security burden will fall by 0.6%.
The deficit will fall by the end of the President’s five-year term
Please note that the deficit increased from 65% of GDP in 2007 to over 90% of GDP in 2012 during the previous President’s five-year term.
The deficit in 2012 led inexorably to an increase in debt. As a result of the decisions taken to support business activity and employment, on the one hand, and to reduce deficits, on the other hand, the debt burden, which represents 93.5% of national wealth in 2013, will fall as from 2016. This deficit reduction will act as a strong signal that France is regaining control over its future, and winning back its financial sovereign power.
For more information: Stability Programme 2014-2017