Tuesday, February 12, 2013

The French Court of Auditors publishes its annual report: Little good news for Hollande

The French Court of Auditors has published its annual report this morning. It is an absolutely massive document, but we have dug out a few interesting findings and recommendations - many of which do not exactly make for happy reading for French President François Hollande and his government:
  • According to the Court, France's public deficit for 2012 will "in all likelihood be close" to the target of 4.5% of GDP. However, the report warns that "important uncertainties remain" over the final figure, which is only due to be disclosed at the end of March. Therefore, "a deficit higher than 4.5% of GDP cannot be ruled out."
  • Unsurprisingly, the Court stresses that the government's growth forecast for 2013 (+0.8%) is much more optimistic than those made by the IMF, the European Commission and the OECD - which all agree on 0.3%. The 0.5% difference, estimates the Court, could mean 0.25% of GDP increase in the deficit by the end of 2013.
  • Crucially, growth forecasts have an impact on revenue estimates as well - especially when it comes to tax and social security deductions (which the French call prélèvements obligatoires, compulsory deductions). The French government is betting on a 2.6% increase of this type of revenue for this year - again, far too optimistic. Tax and social security deductions, the Court explains, are closely linked to how much the economy grows, and have a significant level of 'elasticity' - meaning that they may well be lower than expected even if (and it's a big if by now) the French economy were actually to grow by 0.8% in 2013.
  • The Court concludes that the structural deficit targets (which are relevant under the fiscal treaty and the so-called Excessive Deficit Procedure) are "attainable". However, the nominal deficit target of 3% of GDP for 2013 is "very weakened" by the slowing down of the economy. 
  • On the recommendations side, the Court notes that the French government's deficit reduction effort has relied too much on tax hikes. Therefore, the Court argues, "Stepping up the efforts to rein in spending in the public administration as a whole is now the absolute priority. In fact, the structural [deficit reduction] effort for 2013 is unbalanced: it relies on public spending control for less than 25%, and over 75% on increases in mandatory deductions." 
Some fairly damning assessments then, and we have only scratched the surface of the report. This is also not the first time Hollande has faced this type of criticism from the Cour de comptes. The French Economy Ministry has responded to the report, saying the government sticks to its targets for 2012-13, but will "reappraise" its growth forecast in the new stability programme, due to be submitted to the French parliament in mid-April. Could this be the first step towards a public admission that France will miss its 2013 deficit target?           

1 comment:

Rik said...

1. Hard to believe France will see any growth. France is always behind the more open and competitive economies, which would indicate combined with the Hollande factor (everybody with even an ounce of brain running for the exit) that growth is considerably more likely negative than positive.

2. Structural measures to get things running are almost non existent. Combine this with tax increases and market sentiment getting rapidly very negative. It is even like with Spain difficult to see when the bottom will be reached.

3. 4.5% deficit, with no growth and say 1.5-2.0% inflation means roughly an increase of debt with 3% annually and rather structurally.

4. Looking at growth and austerity in this respect it is hard to believe that the multiplier here is >1.0. Both in negative as in positive territory. The IMF reporting on this therefor and for other reasons look summarised simply crap.

5. Problems the French have is that basically they have a system that a) gives a lot of power to the President, but b) makes it nearly impossible to get rid of him, if he malfunctions like Hollande clearly does. His policies look worse of those by Berlusconi. It took the latter at least several years iso several months to tank the economy.

6.Media probably also need to have a look in the mirror. This is more populistic than nearly all the populists (if you include it being unrealistic what most media do). Furthermore the fact that policies come from main stream parties doesnot mean that they have to be in any way realistic.