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France/economy

Published on April 5, 2012
Excerpt from the communiqué issued following the Council of Ministers’ meeting

Paris, April 3, 2012

Results of the implementation of general government budgets

The results of the implementation of all the general government budgets in 2011 are better than forecast: the public deficit is 5.2% of gross domestic product (GDP) compared to 6% forecast in the 2011 Finance Act and revised to 5.7% under the Stability Pact presented to the European Commission in April 2011. The improvement from 5.7 to 5.2% is 80% due to a lower level of spending than expected (55.9% of GDP compared to 56.3% forecast) and 20% due to a sustained level of revenue (taxes and social security contributions at 43.8% compared to 43.7% forecast). Consequently, the deficit target set in the course of the year, more ambitious than the Finance Act, has been exceeded.

So the public deficit is €103.1 billion for 2011 as against €136.5 billion in 2010. This improvement reached 1.9 percentage point of GDP between 2010 and 2011. It is unprecedented in our history.

For the first time, public spending has been stabilized in volume terms. In value terms, it has risen like inflation, to 2.1%, while GDP rose by 3.8%. This is the fruit of a reduction, for the first time since 1945, in government spending, excluding debt and pensions, and of adherence for the second time running to the Objectif national de dépenses d’assurance maladie [national health insurance spending target].

These good results reflect the government’s determination to cut state spending, and are due to the reforms under way: the general review of public policies, the replacement of only one in every two civil servants who retire and, in particular, pension reform.

This consolidation is not taking place to the detriment of growth. The targeted strategy to cut spending and consolidate revenue means growth in 2011 – particularly in the fourth quarter of 2011 – remained positive. France thus recorded 0.2% growth in what is nevertheless an unfavourable international climate. This performance is all the more remarkable because France is therefore one of the only OECD countries to have shown no decline in its quarterly GDP since the second quarter of 2009.

The gross debt ratio of the whole of general government stood at 85.8% of GDP in 2011 – that is, an increase of 3.5 percentage points of GDP.

First of all, this debt is the sum of the deficits accumulated year-on-year. Moreover, it rose in 2011 for two reasons which did not increase the net debt: more cautious behaviour in view of the financial crisis in local government and social security bodies, which increased their end-of-year level of cash held, and the assistance programmes to European countries. Those assistance programmes are loans which will be repaid to us and which bear interest.

The figure, still high, is a reminder that France is not in a position to relax the effort to consolidate the public finances, and that this effort must be continued with the same determination and responsiveness as it was throughout 2011. Continuing these efforts should make it possible in 2013, with the return to a 3% deficit, to reduce the national debt.

The marked improvement in the business survey figures for March shows that confidence is returning, for both households and businesses. This confidence is reflected in loans at historically low interest rates on the financial markets. These signs of recovery vindicate the strategy for overcoming the crisis at European and national level.

In this context, the government has decided to increase its growth forecast for 2012 to 0.7% (as opposed to 0.5% previously). The deficit target for 2012 has been revised to 4.4% of GDP. The policy being conducted by the government allows us to keep to our long-term commitments: a deficit target of 3% in 2013 and a return to balanced public accounts in 2016./.

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