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Economic and financial situation

Published on September 11, 2014
Communiqué issued following the Council of Ministers’ meeting
Paris, September 10, 2014

The Minister of Finance and Public Accounts and the Minister of the Economy, Industry and the Digital Sector made a statement on the economic and financial situation.

After undergoing the financial and banking crisis of 2008 and overcoming the euro crisis in 2011-2012, France and the Euro Area have for the past few months been facing an exceptional situation marked by very weak growth and, at the same time, a slowdown in inflation that no one had anticipated.

The collapse in Euro Area growth in the second quarter was a surprise, particularly in Germany and Italy. New factors of uncertainty, particularly geopolitical factors, have emerged. Finally, inflation has fallen much more than expected.

So the situation has also deteriorated in France: the 2014 growth forecast will therefore be revised to 0.4%, and that of 2015 to 1%. This scenario is consistent with a more gradual resumption of [economic] activity in Europe.

The inflation forecast for France will also be revised to +0.5% in 2014 and +0.9% in 2015. The recent decisions by the European Central Bank (ECB) are unprecedented, but the ECB itself is not expecting inflation to return towards its 2% target until 2017.

This slowdown in prices is, first of all, the consequence of an excessively weak economic recovery, and it is having a direct impact on the country’s public finances, because less growth and less inflation automatically lead to fewer receipts and more deficit.

In this new context, France will not achieve its deficit target this year, despite having government expenditure under complete control: it should stand at 4.4% in 2014. But through active efforts by all the ministries, and by very carefully managing implementation of the budget, the government is ensuring it sticks to standard government expenditure over the course of 2014.

It is also maintaining its course:

The Responsibility and Solidarity Pact will be fully implemented, for companies and households.

There will be no new tax increases.

In line with the commitments made to the French people, the 2015 budget will implement tax reductions for households on the same scale as the measure censured by the Constitutional Court. The revenu de solidarité active-activité (1) and the prime pour l’emploi (2) will merge on 1 January 2016.

Savings will be made of €50 billion by 2017, including €21 billion in 2015, and deficits will continue to be reduced at a pace compatible with a return to growth.

In these circumstances, the deficit will fall in 2015, reaching 4.3% of GDP.

The reforms will also be continued in order to improve the potential for growth in the economy: progress for companies and industrial dialogue, an act on growth to remove the obstacles to economic activity, a clarification of the territorial system, a review of the missions of state and the modernization of public services.

The challenge, both in France and at European level, is to find the right pace for the reduction of deficits, enabling growth to be protected and involving control of expenditure. It is a question not of reviewing or suspending European rules but of collectively taking into account this shared economic situation – excessively weak growth and excessively low inflation – whilst complying with the treaties.

This situation calls for a consistent economic strategy at European level – backed up by monetary policy –, tailored fiscal policies, structural reforms and a European plan to stimulate investment./.

(1) inclusion income support comparable to the US EITC (earned income tax credit) and the British WTC (working tax credit).

(2) income-dependent premium for employment, to “make work pay”.

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