home Finance For the Court of Auditors, France will have to tighten (seriously) the belt

For the Court of Auditors, France will have to tighten (seriously) the belt

AUSTERITY: The next government will carry out “efforts of unprecedented magnitude on spending,” says the Court of Auditors …

If one believes the Court of Auditors, the Executive neighbor will no longer be content with curb rising public spending: it will have to stop it completely and even make clean cuts. In any case the claims of the judges of the rue Cambon in their annual report released Wednesday.

What is the problem ?

It is always the same, namely: France must reduce its public deficit. It has done since 2010, but at a slow pace. She should get that deficit to below 3% in 2013, but it should only reach this year. And yet, the ECA has doubts about the achievement of this objective … But that is not the major problem. Because even when the public deficit will be passed under the 3% mark, France will continue to reduce – its debt is still too high (representing over 97% of GDP, when it should not, in the Maastricht criteria, exceed 60%). France has therefore committed to its European partners to reduce the deficit between 2018 and 2020 (for those who want the numbers: 0.7 points of GDP per year on average).

So, what does this mean?

That France must (far) reduce public spending. Nothing new under the sun, do you think? Well if. For the moment, France has never reduced its spending . It “only” slowed their rise. Public spending has indeed increased:

  • + 2.3% per year between 2000 and 2009
  • + 0.9% per year between 2010 and 2016

To meet its commitments, France should therefore limit the rise … to zero between 2018 and 2020. This would be a unique endeavor in itself. This is the project sold by the current government in Brussels. But the Court of Auditors, the account is not there: it believes that France must not only halt the increase in spending, but cut them.

What are the fears of the Court of Auditors?

In summary, it does not believe in government calculations. For three reasons:

  • First: Too optimistic growth

For the current Executive, growth will grow again each year to reach 2% in 2020. This level would mechanically increase revenues – and therefore limit all the spending cuts. But the Court of Auditors is concerned that this rebound in growth will not occur, at least not at the level expected by the government. Why ? Because according to the judges of the rue Cambon, growth would have already had to go, thanks to falling oil prices and lower interest rates.

  • Second: Decisions “against-productive”

According to the Court of Auditors, the decisions that this government has already taken that will have an impact after 2017 will all increase public spending. It cites in particular the increase in remuneration in the public service, the budget increase of defense or possible recapitalization of public companies (Areva and EDF in particular ).

  • Third: The interest rate that will rise

If public spending has evolved moderately between 2010 and 2015, says the Court of Auditors, it is mainly because the interest paid by the State to its creditors declined. But this situation does not perpetuate, in the Court of Auditors. Rather, it believes that “the risk that the interest burden goes back to a medium-term horizon is not insignificant.”

What should the next executive?

Do not “satisfied” to stabilize expenditure, “but the drive down from 0.3% in 2020,” says the Court of Auditors. Which will force the next government to “review the tasks performed by government” and to ”  make choices”. Understand, make cuts. Some “political intervention” should be better targeted, says the Court of Auditors, particularly in the field “housing, vocational training or health.” Recall that public spending accounted for 57% of GDP in France in 2015, against less than 47% for other countries in the eurozone.

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