In accordance with Article 104(8), the European Commission today recommended to the Council to decide that France has taken no effective action in response to the Council Recommendation according to Article 104(7) of 3 June 2003 within the period laid down in that Recommendation. The Commission is thereby honouring its obligations laid down in Article 104 of the Treaty, as well as its political commitments given in the European Council resolution on the Stability and Growth Pact for a strict, timely and effective functioning of the Pact.
Based on the evidence that the government deficit in France amounted to 3.1 per cent of GDP in 2002 and on a report from the Commission made in accordance with Article 104(3), the Council decided on 3 June that an excessive deficit exists in France. At the same time, the Council adopted a recommendation according to Article 104(7) of the Treaty with a view to bringing the situation of excessive deficit to an end. In this recommendation, the Council recommended France to put an end to the excessive deficit situation by 2004 at the latest. The Council established the deadline of 3 October 2003 for the French government to take appropriate measures to this end. The Council also recommended France to achieve a significantly larger improvement in the cyclically-adjusted deficit in 2003 than that planned at that time, and to limit the increase in the general government gross debt to GDP ratio in 2003.
Five days after the expiry of the deadline set by the Council, the Commission makes the following assessment:
Following the adoption of the recommendation under Article 104(7), the French authorities have taken a number of measures concerning the year 2003.Following the adoption of the recommendation under Article 104(7), the French authorities have taken a number of measures concerning the year 2003.
(i) in September the French authorities took the decision to cancel credits in the State sector worth € 1.4 billion (0.1% of GDP). However, this cancellation is meant to ensure the achievement of the planned expenditure objective in the State sector, and not to secure a better outcome.
(ii) in July, the government decided to cancel the reimbursement of drugs with “insufficient medical service”;
(iii) in the same month, an increase in taxes on tobacco was decided taking effect in October; and (iv) on the 1st of September, social contributions for AGS, "association pour la gestion du régime d'assurance des créances des salariés" (this is a fund in charge of the payment of wages of workers in companies in bankruptcy), were risen slightly. The last three measures will have a marginal impact on the 2003 general government deficit but some of them will have a larger impact on the 2004 general government deficit.
Last but not least, the French authorities implemented successfully an important pension reform which was under discussion at the moment that the Council adopted the recommendation according to Article 104(7). However, these measures dido not reduce significantly reduce the 2003 cyclically-adjusted general government deficit below the level planned in June as required by the Council.
The budgetary plans for 2004 include an implicit improvement in the cyclically-adjusted balance consistent with the minimum amount of 0.5 percentage point of GDP recommended by the Council in June 2003. However, the Commission concludes that this improvement will not be sufficient to ensure that the cumulative improvement in the cyclically-adjusted balance in 2003-2004 brings the nominal deficit below 3% in 2004, as was recommended by the Council in June. Indeed, the draft Budget projects the general government deficit to decline from 4.0% of GDP in 2003 to 3.6% of GDP in 2004.
The general government debt is projected by the French authorities to increase from 59.0% of GDP in 2002 to 61.4% of GDP in 2003; in June, it was expected to increase from 59.0% of GDP in 2002 to 60.5% of GDP in 2003. The upward revision to debt projections for 2003 reflects almost only the impact of the deficit estimates revisions for 2003. This is evidence that the French authorities did not take measures to limit the increase in the general government debt in 2003 as recommended by the Council in June.
Treaty establishing the European Community
1. Member States shall avoid excessive government deficits.
2. The Commission shall monitor the development of the budgetary situation and of the stock of government debt in the Member States with a view to identifying gross errors. In particular it shall examine compliance with budgetary discipline on the basis of the following two criteria:
a) whether the ratio of the planned or actual government deficit to gross domestic product exceeds a reference value, unless:
- either the ratio has declined substantially and continuously and reached a level that comes close to the reference value;
- or, alternatively, the excess over the reference value is only exceptional and temporary and the ratio remains close to the reference value;
b) whether the ratio of government debt to gross domestic product exceeds a reference value, unless the ratio is sufficiently diminishing and approaching the reference value at a satisfactory pace. The reference values are specified in the Protocol on the excessive deficit procedure annexed to this Treaty.
3. If a Member State does not fulfil the requirements under one or both of these criteria, the Commission shall prepare a report. The report of the Commission shall also take into account whether the government deficit exceeds government investment expenditure and take into account all other relevant factors, including the medium-term economic and budgetary position of the Member State. The Commission may also prepare a report if, notwithstanding the fulfilment of the requirements under the criteria, it is of the opinion that there is a risk of an excessive deficit in a Member State.
4. The Committee provided for in Article 114 shall formulate an opinion on the report of the Commission.
5. If the Commission considers that an excessive deficit in a Member State exists or may occur, the Commission shall address an opinion to the Council.
6. The Council shall, acting by a qualified majority on a recommendation from the Commission, and having considered any observations which the Member State concerned may wish to make, decide after an overall assessment whether an excessive deficit exists.7. Where the existence of an excessive deficit is decided according to paragraph 6, the Council shall make recommendations to the Member State concerned with a view to bringing that situation to an end within a given period. Subject to the provisions of paragraph 8, these recommendations shall not be made public.
8. Where it establishes that there has been no effective action in response to its recommendations within the period laid down, the Council may make its recommendations public.
9. If a Member State persists in failing to put into practice the recommendations of the Council, the Council may decide to give notice to the Member State to take, within a specified time-limit, measures for the deficit reduction which is judged necessary by the Council in order to remedy the situation. In such a case, the Council may request the Member State concerned to submit reports in accordance with a specific timetable in order to examine the adjustment efforts of that Member State.
10. The rights to bring actions provided for in Articles 226 and 227 may not be exercised within the framework of paragraphs 1 to 9 of this Article.
11. As long as a Member State fails to comply with a decision taken in accordance with paragraph 9, the Council may decide to apply or, as the case may be, intensify one or more of the following measures:
- to require the Member State concerned to publish additional information, to be specified by the Council, before issuing bonds and securities;
- to invite the European Investment Bank to reconsider its lending policy towards the Member State concerned;
- to require the Member State concerned to make a non-interest-bearing deposit of an appropriate size with the Community until the excessive deficit has, in the view of the Council, been corrected;
- to impose fines of an appropriate size. The President of the Council shall inform the European Parliament of the decisions taken.
12. The Council shall abrogate some or all of its decisions referred to in paragraphs 6 to 9 and 11 to the extent that the excessive deficit in the Member State concerned has, in the view of the Council, been corrected. If the Council has previously made public recommendations, it shall, as soon as the decision under paragraph 8 has been abrogated, make a public statement that an excessive deficit in the Member State concerned no longer exists.
13. When taking the decisions referred to in paragraphs 7 to 9, 11 and 12, the Council shall act on a recommendation from the Commission by a majority of two-thirds of the votes of its members weighted in accordance with Article 205(2), excluding the votes of the representative of the Member State concerned.
14. Further provisions relating to the implementation of the procedure described in this Article are set out in the Protocol on the excessive deficit procedure annexed to this Treaty. The Council shall, acting unanimously on a proposal from the Commission and after consulting the European Parliament and the ECB, adopt the appropriate provisions which shall then replace the said Protocol. Subject to the other provisions of this paragraph, the Council shall, before 1 January 1994, acting by a qualified majority on a proposal from the Commission and after consulting the European Parliament, lay down detailed rules and definitions for the application of the provisions of the said Protocol.