Since June 19, 2024, France has been placed under the “excessive deficit procedure” by the European Commission: the sustainability, as defined by the new European treaty, of its public debt is therefore not assured.
Representing 111.7% of GDP in 2023, this debt has never stopped growing since 1980, when it stood at just 21.1% of GDP.
How can the French State reduce its expenditure net of interest charges to make its debt sustainable?
This note aims to answer this question, using the method that will be used by the European Commission when it proposes a budgetary trajectory to the French government as part of the excessive deficit procedure to which it is subject.
It thus enables us to anticipate what the European Commission’s recommendations will be, but also to propose scenarios that would better preserve GDP growth in the context of fiscal consolidation.
The results of the simulations indicate two initial elements for negotiation.
Length of adjustment.
It would be preferable to negotiate a 7-year budgetary adjustment rather than a 4-year one, even if the smaller annual budgetary restrictions associated with a longer adjustment would run up against the requirement to reduce the overall deficit by 0.5% of GDP per year between 2028 and 2030, a constraint linked to France’s excessive deficit procedure.
Magnitude of short-term budgetary effort.
A sequence of fiscal restraint, with net spending cuts limited to €20 billion in 2025 and 2026, would be the best way to preserve growth in the context of this fiscal consolidation policy.
If the European Commission accepts these two conditions, then French governments, whoever they may be, will have to reduce the primary structural deficit by €20 bn in 2025 and 2026, then by €14.5 bn in 2027, €20 bn in 2028, €20.4 bn in 2029, €8.8 bn in 2030 and €9.3 bn in 2031, i.e. approximately €110 bn in savings over 7 years.
The overall deficit should then fall from 5.25% in 2023 to 2.66% of GDP in 2031.
Over the first 4 years of the adjustment period (2025-2028), nominal GDP growth would average 2.15%/year, while over the 7 years of the adjustment period (2025-2031), it would average 2.52%/year.
In this scenario, indebtedness would continue to rise until 2029, reaching 117.6% of GDP, before falling back to its current level in 2035, and finally dropping below 100% in 2050.
