Blog post

French public finances: Time for change

Publishing date
03 May 2011

For the past thirty years, France has consistently failed to manage its public finances. The debt-to-GDP ratio has inched upwards year after year, budgetary policies have been unfailingly pro-cyclical, and the country has squandered most of its credibility with EU partners because of repeatedly unkept promises.

The time, however, has now come and budgetary issues will take centre-stage in the next presidential elections. The reasons for this are twofold. The first is that, in order to regain control of its finances, France will have to carry out unprecedented budgetary adjustments – to the tune of 4% of GDP (80 billion euros) over five years. The second reason is that France’s external creditors will no longer tolerate recurrent deficits, and the pressure from European budgetary surveillance will be stronger.

These two constraints will apply to all presidential candidates. Only the pace and composition of the adjustment will be within their power: the target is not really theirs to define. It would therefore be desirable to see the presidential campaign focus on the key choices for the consolidation strategy: the balance between spending cut and tax increases, and the precise nature of these adjustments.

This situation calls for a new approach to policymaking that would delineate between unavoidable budgetary discipline and what results from policy preferences; align budgetary policy with economic objectives; and help regain lost credibility.

The reform proposal presented by the French government aims to require annual budgetary laws to be consistent with framework laws (lois-cadres) establishing multiannual guidelines for public finances. The content of these laws, the period they cover and how their provisions apply to annual budgets should be determined by what the French call an “organic law” (procedural laws that stand below constitutional level but above standard legislation).

This proposal offers an opportunity to reflect on a much-needed (and much-delayed) national definition of fiscal responsibility. With the presidential campaign on the horizon, the timing for such a reflection is perhaps not ideal. But the issue will not disappear after the elections, and it would be a shame for tactical considerations to completely overshadow the debates.

The government proposal is based on a report prepared by former IMF head Michel Camdessus. It addresses shortcomings of past budget practices but requires amendments on several points.

First, the proposal does not set a time frame for the consolidation of public finances. The risk is that governments will stick to the minimum and that public debt will remain at high levels. France should set itself a debt target to be reached in twenty years’ time, a long enough period for the adjustment not to weigh excessively on growth.

Second, the time period covered by the multiannual budgetary planning should be specified, which the proposal does not do. A recent parliamentary report recommends three years. We would prefer the multiannual planning horizon to coincide with the five-year legislative and presidential terms. The passing of a multi-year law at the beginning of the term would set guidelines for fiscal policy in the remaining years. This would facilitate evaluation by the citizens of each administration’s budgetary record.

Thirdly, there is a need to correct past deviations. Over five years, slippages and good surprises can lead to significant divergence from planned trajectories. It is thus important to create a notional control account, so that beyond a given threshold differences between planned and realised outcome can be compensated for in the following years. Such a procedure would allow enough flexibility with respect to the cycle, but would avoid persistent slippages.

Lastly, the reform should provide for the creation of an independent Council for Fiscal Responsibility, with no executive power but that would be entrusted with carrying out budgetary projections, providing the economic forecasts used for the budget, and evaluating policies. This would enhance the quality of projections and evaluations, provide greater transparency in public debates, and ensure that annual decisions and long-term objectives are consistent.

It is high time to rethink France’s fiscal framework: it is key for regaining the economic independence underpins policy choices.

Translation of an op-ed in Les Echos of 5 May 2011. This op-ed is based on the authors’ contribution to Quelles  réformes pour sauver l’Etat? edited by Jean-Paul Betbèze and Benoît Coeuré, Cercle des économistes / Descartes / PUF, Paris, forthcoming May 2011.

About the authors

  • Jean Pisani-Ferry

    Jean Pisani-Ferry is a Senior Fellow at Bruegel, the European think tank, and a Non-Resident Senior Fellow at the Peterson Institute (Washington DC). He is also a professor of economics with Sciences Po (Paris).

    He sits on the supervisory board of the French Caisse des Dépôts and serves as non-executive chair of I4CE, the French institute for climate economics.

    Pisani-Ferry served from 2013 to 2016 as Commissioner-General of France Stratégie, the ideas lab of the French government. In 2017, he contributed to Emmanuel Macron’s presidential bid as the Director of programme and ideas of his campaign. He was from 2005 to 2013 the Founding Director of Bruegel, the Brussels-based economic think tank that he had contributed to create. Beforehand, he was Executive President of the French PM’s Council of Economic Analysis (2001-2002), Senior Economic Adviser to the French Minister of Finance (1997-2000), and Director of CEPII, the French institute for international economics (1992-1997).

    Pisani-Ferry has taught at University Paris-Dauphine, École Polytechnique, École Centrale and the Free University of Brussels. His publications include numerous books and articles on economic policy and European policy issues. He has also been an active contributor to public debates with regular columns in Le Monde and for Project Syndicate.

  • Laurence Boone

    Laurence Boone is the OECD Chief Economist and Head of the Economics Department since July 2018. Ms. Boone ensures that the Department is at the forefront of Economic thinking and will coordinate the work of the Country Studies and Policy branches to create new opportunities and enhance synergies and co operation with the whole of the OECD, including through contributions to horizontal projects.

    Ms. Boone also supervises the contributions of the Economics Department to the New Approaches to Economic Challenges (NAEC) and Inclusive Growth (IG) initiatives. She is the Secretary General’s spokesperson on economic issues and serves as the OECD Representative at the Deputies’ meetings of the G20 Finance Track.

    Before joining the OECD, Ms. Boone was the Chief Economist at AXA Group and Global Head of Multi-Asset Client Solutions & Trading and Securities Finance, AXA Investment Managers, France. She was an independent director of Kering's board and remains a member of the Strategic committee of Agence France Trésor, the French National Debt Office.

    Prior to this, she was Sherpa and Special Advisor for Multilateral and European Economic & Financial Affairs to the President of the French Republic (2014-2016); Chief Economist and Managing Director at Bank of America Merrill Lynch (2011-2014); Managing Director and Chief Economist France, Barclays Capital (2004-2011); Economist, Organisation for Economic Co-operation and Development (1998-2004); Economist, CEPII, France (1996-1998) and Quantitative Analyst for Merrill Lynch Asset Management, UK (1995-1996).

    She is a member of the Cercle des Economistes as well as of SDA Bocconi.

    Author of numerous articles, she taught at the École Polytechnique, ENSAE (the National School of Statistics) and the École Normale Supérieure and Sciences Po (Paris School of International Affairs).

    Ms. Boone, a French national, has a PhD in Applied Econometrics from the London Business School (UK); a MSc in Econometrics & Macroeconomic Modelling from Reading University (UK); a Master's Degree in Economics from Université Paris X Nanterre (FRA) and a postgraduate diploma (DEA) in Modelling and Quantitative Analysis from University Paris X Nanterre (FRA).

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