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REPORT ON THE SITUATION AND OUTLOOK
OF FRENCH PUBLIC FINANCES
Press Conference
Tuesday 30 June 2020 – 10:00 am
Speech by Pierre Moscovici,
First President of the Cour des comptes
Ladies and gentlemen,
Thank you for being here and welcome to the Cour des comptes.
I am very pleased that
today, in spite of the current health emergency, we can still gather together in this Grand
Chamber for my first press conference as First President. I know that some of you are following
us remotely, so I thank you for that and, of course, I welcome you.
With me are the President of the First Chamber, Christian Charpy, the General Rapporteur of
the Court, Michèle Pappalardo, and the main
rapporteur
of this report, Nicolas Carnot. I also
welcome the counter-
rapporteur
, Jean-Pierre Laboureix, and the two other
rapporteurs
,
Vianney Bourquard and Vladimir Borgy, the team that prepared the report.
The report I am presenting to you today concerns the situation and outlook for public
finances, and I know that it is particularly eagerly awaited this year.
I will be in the National
Assembly this afternoon and in the Senate tomorrow to present it. I would remind you that it is
a report that is drawn up within the framework of the LOLF, a framework embedded in the
Constitution, which also entrusts us with the mission of helping to inform citizens through our
public reports.
This is a mission to which I am particularly attached, and which takes on its full meaning with
you today.
My Presidency began in an absolutely unprecedented context, that of a major and
multidimensional crisis, which has hit our fellow citizens hard and is still affecting them,
which has hit our economy hard, and which is going to have a lasting impact on the
landscape of our public finances.
This context has also, logically, substantially changed the conditions under which this report
was drawn up as well as its very content, as you will see or have perhaps already seen.
The way in which the report has been prepared has naturally had to be adapted.
2
It was drawn up in the midst of a health emergency, with several revisions of macroeconomic
assumptions and public finance forecasts, leading the Government to present three amending
finance bills in less than three months, as events unfolded, and with administrations mobilized
to manage the crisis. It was an extremely evolving situation and we have analysed the
information available as of 25th June 2020.
The content of the report itself has in turn been adapted to the crisis
. It would have been
absurd to ignore it. Our analyses of the outlook on public finances usually focus on the
projections of the stability programme, but this year, in an unprecedented way, the French
report does not present a scenario beyond 2020, which is quite understandable. In the absence
of a government forecast, we have focused our analyses on what I consider to be the decisive
issue of the sustainability of public debt. During my first hearing before the parliamentary
assemblies, as President of the High Council, I indicated that the debt had to be repaid one
day and that the situation we are experiencing, with an unprecedented amount of debt, called
for collective vigilance and intelligence.
I will come back to this in more detail in a moment within the framework of the Court’s report.
It seeks to provide us with the keys to rethinking, at a national level but also on a European
scale, a strategy for public finances.
We have thus endeavoured to fulfil our mission to the best of our ability despite the
circumstances.
I should like to thank the team of rapporteurs for their work and to emphasise
the availability of the administration to respond to the Court's requests. In the end, I believe
that what we have here is a unique report, very sharp on the past, very clear on the present
and the future.
Our report on the situation and outlook of public finances this year is entirely focused
on the consequences of the major crisis we are going through.
3
It is irrigated by three questions, which make up the different parts and strands of the report:
First question: under what conditions and with what financial leeway has France tackled
this shock? The year is 2019.
What is the extent of its impact on our public finances in 2020?
And finally, what prospects can we draw for the future, particularly to ensure the
sustainability of our public debt?
I will come back to each of these points.
***
I will naturally start with the first question, which corresponds to the first part of the
report, namely the year just passed.
No surprise there. The report's observation is clear, it corresponds to a diagnosis that the Court
has been making for several years, so I will not dwell on it for too long: in 2019, on the eve of
the crisis and from the point of view of its public finances, France was not in as favourable a
position as other European states to face such a shock.
Ten years after the 2009 financial crisis, the repair of public finances was still
incomplete.
Saying that I do not want to give in to self-flagellation!
Such national masochism, such
tendency to overwhelm ourselves is not appropriate today. The last decade has not been free
of budgetary efforts, particularly in terms of revenue at the beginning of the period. They have
enabled France to gradually reduce its public deficit, which stood at 7.2% in 2009, and
eventually, as I experienced this from the other side of the border, to get out of the excessive
deficit procedure.
4
It should be noted, however, that these efforts have gradually lost momentum over the
years.
Tax cuts followed tax increases, whilst the structural balance of our accounts was not
restored and public spending was insufficiently curbed; it even increased by two points of GDP
between 2007 and 2019.
The objectives set in public finance programming laws have been postponed several times
and have in fact never been achieved.
5
It can, therefore, be said that structural repair has slowed down in France as the
situation of public finances in 2019, at the end of the decade, seems to evidence.
The public deficit stood at 3 points of GDP, of which 0.9 point, it should be noted, was due to
the one-off effect of the transformation of the CICE into a social contribution reduction.
This compares to 2.3 points in 2018. The structural deficit, on the other hand, has not been
reduced. It is stable at 2.2 percentage points of GDP, thus remaining far from the medium-
term objective of structural balance. This is the result of two factors:
firstly, the cuts in taxes and social security contributions have undoubtedly been
intensified
following the social movements in the autumn of 2018, with reduction
measures that last year amounted to almost
10 billion;
6
secondly, public expenditure accelerated at the same time
, making it impossible to
finance the revenue shortfalls.
I am not going to go into detail here about the different levels of public administration.
7
With regard to the State, comprehensive analyses were presented by the Court in its report on
the State budget last May. The report on the social security results in 2019, also published
today and which you can consult, and the report on local public finances, which will be
published next week, on 6 July, will detail for their respective sectors the elements of analysis
relating to the past financial year.
But let us say that the overall state of our public finances distinguishes us from some
of our main partners in the euro area. In 2019, our public deficit was the highest in the
euro area
, 2.4 points higher than the average of the euro area countries. Portugal, Germany
and the Netherlands had budget surpluses.
France has therefore failed to maintain a strong reduction in its public deficit, despite a
rather favourable economic context in recent years, and this change in the level of the
deficit has led to a level of public debt that was already very high even before the health
crisis broke out in 2020.
Since the 2009 crisis, France has not seen a decline in its debt. The debt-to-GDP ratio thus
increased by more than 33 GDP points between 2007 and 2019, while some of our main
partners, Germany, Belgium, the Netherlands, but also Portugal and Spain, have managed
since 2014, sometimes after difficult adjustments, to bring down their debt-to-GDP ratio.
If we want a comparison with a country that is close to us, Germany's debt was at a level close
to ours as a share of GDP in 2007. It fell below the Treaty threshold of 60% in 2019, while our
debt-to-GDP ratio has been rising steadily, reaching 100%.
8
We must, therefore, draw an overall conclusion from all this: France is one of the euro
area countries that entered the crisis with a higher deficit and debt levels than the
average for the area, but also with high levels of taxes and compulsory contributions
and public spending, whereas other countries had greater room for manoeuvre.
The Court has more than once in the past pointed out the risks that such a situation could pose
in the event of an economic or social shock,
and this shock materialised in 2020 in a brutal
manner, under conditions that were obviously totally unpredictable and, strictly
speaking, extraordinary.
***
This also explains the content of the second part of the report, which I shall discuss
now, dealing with the consequences of the current crisis on our public accounts in 2020.
They are obviously considerable and surrounded by uncertainties of unprecedented
magnitude, commensurate with the crisis.
This crisis is first and foremost a health crisis. It has led to severe restrictions on economic
activity for several weeks and quickly led to the European institutions triggering the derogation
clause in the Stability and Growth Pact, which has made it possible, it can be said, to
temporarily suspend the application of the rules governing public finances.
The strong uncertainty resulting from the health situation has led to frequent revisions of
macroeconomic forecasts as well as of public finance trajectories.
I have told you that three draft amending budget bills have been prepared in three months,
each time incorporating very significant adjustments.
9
Between the initial budget law and the third draft amending budget law, forecasts have
nevertheless changed considerably: GDP growth was forecast to rise by 1.3% in volume terms;
it is now expected to fall by 11%; the public deficit would reach
250 billion against an initial
forecast of
53.5 billion and the public debt would worsen by 22 GDP points, which is massive.
These levels are completely unprecedented and reflect the absolutely exceptional
consequences of the most serious crisis that France and the world have experienced
since the Second World War.
The Government's latest forecasts estimate the decline in GDP at 11%; I would remind you
that it was 2.9% in 2009. The current crisis is, of course, much more violent. Such hypothesis,
which the HCFP has described as prudent, also appears plausible to the Court, which also
uses the term "prudent". If there are risks, they are rather on the rise. The hypothesis assumes
a very gradual repair in the second half of the year in both economic activity and household
consumption.
As shown by the latest business surveys, and barring a resurgence of the epidemic, the
recession could, therefore, be less severe than the Government's forecast.
The public deficit would amount to 11.4 points of GDP
, which is a forecast that appears to
the Court as broadly balanced.
The explosion of the deficit, if it is analysed, is mainly the result of the effect of the crisis
on public revenue
, with a very sharp fall in compulsory levies, roughly in proportion to that of
GDP, i.e. a unitary elasticity. This assumption seems reasonable to us.
10
The increase in government deficit can also be explained by a strong fiscal response,
reflected in the exceptional measures adopted to fight the epidemic and support the
economy.
The direct cost of these measures is estimated in the latest Amending Budget Act at
57.5
billion, i.e. 2.6 points of GDP.
Such new expenditure is largely borne by the State, up to 63%, and by social security
administrations. The latter, as the Court points out in its report on social security performance,
have also seen their financial perspectives totally overturned by the crisis and are suffering a
significant fall in revenue.
The social security financing law for 2020 foresaw a
5.4 billion deficit in the general scheme
and the old-age solidarity fund. It would reach
52bn in 2020, i.e. almost tenfold, according to
the latest forecasts by the Social Security Audit Committee. Local public administrations, which
will be discussed next week, seem to be relatively less affected, even if many uncertainties
remain.
The first part of the report on local public finances, which will be published on 6 July, will
address this subject, and the second part, which will be published in autumn, will deal with it
in depth.
As a result of the wide-ranging measures adopted to limit the effects of the health crisis
on economic players, public spending is expected to increase by a total of 6.4 points in
2020 compared with 2019, representing an unprecedented level of 63.6% of GDP.
11
Other support measures, announced at a later stage, have not yet been transcribed into
financial law. There will surely be further amending finance acts, which will be
incorporated into the future finance bill.
I am thinking of the measures in favour of hospital
staff, the plan to support small businesses and the recent announcements concerning the
reform of partial activity.
In addition to these measures, the Government has adopted several support measures
which, in its view, would have no effect on the public balance in 2020.
In particular, it has
granted its guarantee for a very broad programme of loans to enterprises; it has undertaken
operations to rescue enterprises through equity investments or loans.
If I summarise, I would say that in the face of this major and unparalleled crisis, we have
reacted, France has reacted, by accepting the fall in public revenue and adopting a
considerable support plan to sustain incomes and preserve productive capacity as
much as possible.
This approach is not purely French, in fact, it is common to the major
economies of the world, and in particular to the countries of the eurozone. Our main partners
should also experience in 2020, and it is important to stress this as we must bear in mind a
balanced perspective, a very marked decline in their activity and a sharp deterioration in public
accounts, although, that is the difference, the levels of deficit and debt reached also depend
on the initial situation of their public finances on the eve of the shock.
12
The crisis has already had dramatic consequences for some of our fellow citizens, but
most of its economic cost has been transferred to our public debt, with the increase in
the deficit in 2020 absorbing three-quarters of the loss of GDP.
This means that we have
really been talking about a return of the State!
According to the latest forecasts, our debt level would reach 120 GDP points, an increase of
nearly
270 billion in 2020. In terms of amount, the debt would represent
40,000 per French
person, a quite substantial amount.
We can, therefore, see that the consequences of this crisis on France's public finances
are absolutely considerable, they are commensurate with the shock we have
experienced, they are proportionate to it and to the necessary efforts made to limit its
consequences.
The Court draws up the picture without making any legitimate claims, which,
moreover, would not be within our remit.
***
I now come to the third part of the report, which examines possible developments in
public finances over the next decade, and I do so with a central analysis: debt
sustainability is, I repeat, more than ever an issue, if not the key issue for public
finances.
Usually, as I said, the Court analyses the medium-term projections of the stability programme.
There were no such projections this year, which is understandable.
13
In this context, the Court does something different and considers three scenarios,
which
are not intended to forecast but simply to illustrate different possible paths based on growth
assumptions:
The first scenario is called "catch-up".
It predicts that GDP will return to its pre-crisis
path after a few years;
In the second scenario, which we call the "limited loss" scenario,
GDP does not
fully recover the ground lost during the crisis, but follows the same growth trend as
before the crisis;
In the third scenario, which we call "persistent weakness",
the level and growth
rate of GDP decline in a sustainable manner compared to the pre-crisis level and
growth rate.
These three stylized scenarios are meant to be pedagogical, there could, of course, be others.
Their evolutions are distinguished by the extent of the rebound inactivity after 2020 and by the
degree of repair of the economy in the short and medium-term. I will go into a little more detail.
In the catch-up scenario, GDP rebounds sharply from 2020 onwards and the deficit is
rapidly reduced to a level close to 2%.
This scenario is based on the assumption that
potential growth would not be affected by the shock, in particular thanks to the support
measures adopted.
14
Let me say at the outset that, despite the very specific nature of the health crisis, this
assumption seems rather optimistic to us, as it did to the High Council of Public
Finance.
Why? Because we believe that several factors, such as corporate bankruptcies or
the delayed consequences of the Covid-19 crisis on the labour market, may reduce production
capacity. It, therefore, seems more likely to use that the crisis will leave lasting scars on our
economic capacities, with a persistent impact on public resources.
In the second scenario, the "limited loss" scenario, potential growth would not be
affected by the crisis either, but the rebound in GDP would be less marked in the short
term and the losses would not be fully recovered.
The level of GDP would then remain durably below that which would have prevailed in the
absence of the crisis, representing about two and a half years of growth lost as a result of the
shock. In this scenario, the rebalancing of the public accounts would be a little slower and
would certainly be incomplete, with a public deficit that would remain above 4 GDP points. This
second scenario does not seem far from plausible to us.
The third scenario is more pessimistic. It is referred to as "persistent weakness" and is
based on an even more moderate rebound in activity at the end of the crisis and on
lastingly reduced growth potential.
The deficit would remain high, barely falling below 6%
in the mid-2020s.
15
In the event of a "catch-up", the debt would fall rapidly as a share of GDP and then
more gradually. However, this figure should be borne in mind: ten years after the crisis,
the debt ratio would still remain above 100 GDP points;
IIn the "limited loss" scenario, this ratio would be maintained at just over 115 GDP
points by 2030;
Finally, in the "persistent weakness" scenario, the debt would increase continuously,
reaching 140 GDP points in 2030.
As I said, these are three options which naturally do not cover the whole range of
possibilities, but the interest of this approach is to bring us several lessons:
Firstly, we must be aware that the repair of public finances will, in the best of
cases, be gradual;
Secondly, even in the most favourable scenario, the debt would not return to its
pre-crisis level by 2030. We are therefore going to live in a situation of
deteriorated public finances for the long term.
However, I do not want to give in to catastrophism, but I do want to say that debt
sustainability will, in the coming years, be a decisive issue for public finances.
It would be imprudent to rely solely on growth to control our debt trajectory. Such a
choice would ultimately expose us to major difficulties in the event of a rise in interest
rates.
Obviously, and this is why I do not want to give in to catastrophism, France's debt is
now being financed in a satisfactory manner: the action taken by the ECB, the level of interest
rates, the prospect of a Europe-wide debt initiative and the quality of France's credit rating all
contribute to this. France's debt is being financed and it is being financed well.
It would be tempting, in this context, to rely on Balzac's carefree formula in his play Le Faiseur:
"Is there a single State in Europe that does not have its debts? ». Yes, but the fact remains
that debt must eventually be repaid and that reducing our public debt is necessary both to
restore room for manoeuvre in the face of possible new shocks and to return to a path closer
to that of our partners in the euro area. Belonging to a single currency creates a requirement
for convergence.
The Court is therefore not pessimistic, but pragmatic.
The experience of other countries,
and of France in the more distant past, shows us that it is possible to reduce the debt burden
without having a lasting impact on growth.
This is the challenge that awaits us in the coming years.
France must therefore now lay down the principles of a strategy for the repair of public
finances.
16
It is a strategy that is part of a European framework that I am familiar with, and which is now
the subject of discussions on the development of the Stability and Growth Pact after the health
crisis, to make it a simpler, more readable instrument that is capable, I cannot help saying, of
useful counter-cyclical action.
At the national level, this strategy will have to be part of an appropriate multiannual
horizon.
In the immediate term, the priority is obviously to control the health situation and
obviously to restart activity.
In this respect, it seems essential, in order to support the economy, to give priority to temporary
and targeted support measures that promote growth potential. Some repair measures could
be financed by a European initiative, if this materialises, which is what I hope, rather than by
increased recourse to the national debt.
Secondly, we should be committed to a sustained but steady pace of repair of public
finances.
17
As I said before, I believe in seriousness, I do not believe in austerity and I believe less than
ever in the situation we are in. This effort should therefore not be too abrupt at the end of the
crisis, so as not to curb the repair – we are not in a financial crisis situation as we were in 2008,
it is very different – but it is important that it is a long-term effort. In this regard, the Court
considers that a new public finance programming law is the most appropriate vehicle for
carrying this medium-term strategy forward. It is important that it should be presented rapidly
in order to set that direction. The perspective which it will set out must be based on realistic
economic assumptions, on the basis of which the multiannual programme can then set credible
targets for the increase in public expenditure.
Finally, and I will end here, the public accounts repair strategy will have as its pillars
not only the sustainability of the debt but also the quality of public spending.
18
As I have said, we will, in any case, have a sustainable development of our public finances
which will require an effort to prioritise political priorities, in particular by means of what are
known as expenditure reviews that are more substantial than in the past and which benefit
expenditure deemed to be a priority and whose effectiveness has been demonstrated. This
also implies an improvement in their efficiency in order to create room for manoeuvre without
sacrificing the quality of our public services. I would point out that if further reductions in
compulsory levies are envisaged, they should be accompanied by increases in other levies or
the elimination of niches, or else find their counterpart in new efforts to control expenditure, in
short, be balanced.
The review of the quality of public spending must, however, and this point is, in my
view, very important, safeguard public investment, and the report emphasises this
point.
When its socio-economic benefits are demonstrated, it is indeed a powerful vector for
growth.
This is a direction that will enable us, for example, to provide more support for the ecological
transition or to strengthen our health system, but this presupposes that two prerequisites must
be met:
The first, of course, is that other public spending must be subject to greater control,
and the second is that investment decisions should be better informed, i.e. that their
effectiveness and socio-economic relevance can be taken into account to a greater
extent in the choices made. The Court does not advocate investment at all costs, but a
useful investment, socially, ecologically and economically useful investment.
19
During my presidency, I shall also be keen to develop our evaluation capacities and our
forward-looking and comparative dimension. I believe that this report is the first manifestation
of this and I am very proud to present it for my first press conference.
I would like to make this enhanced expertise available to Parliament, to the Government and
to the citizens in order to help us, at our level, to build the public finance landscape of our
country.
***
Ladies and gentlemen,
If I were to summarise our report and my whole point, it would be in three words: past,
present and future.
The past is the unfinished repair of public finances on the eve of the crisis, particularly in
comparison with some other European states.
The present is a considerable shock to our economy, which is having a severe and lasting
impact on our public accounts.
The future is the gradual end of the crisis, the path to return to balanced public finances, the
sustainability of our debt and the quality of our public spending.
Here are the guidelines that the Court recommends for regaining control of our debt in the
years to come: we wanted them to be balanced and realistic, attentive, of course, to the risks
of an uncontrolled debt, but fully aware of the need to promote growth after the trying crisis
that our country is going through.
I thank you now for your presence and your attention and I am at your disposal, together with
the members of the Court who are with me, to answer your questions.