France must do more to cut down debt, Court of Auditors chief urges

France’s debt reduction plan must be more ambitious than what’s already been laid out, French Court of Auditors President and former European Commissioner Pierre Moscovici told EURACTIV France in an interview, warning that the country’s public finances were in a particularly poor state.

Find the original interview in French here.

France is currently one of the most indebted countries in the euro area, with public debt levels topping 111.6% of GDP in 2022 and a deficit of 4.7% of GDP.

As part of the European Semester, which requires EU governments to commit to public debt reductions and lay out key reforms to do so, France’s Economy Minister Bruno Le Maire announced in April he would “accelerate” the reduction through a series of spending cuts, with the goal of bringing the deficit below the threshold of 3% of GDP by 2027.

Le Maire’s commitment to debt reduction effectively closed three years of a “whatever it costs” philosophy, raising debt as required to keep the economy afloat throughout both the COVID-19 and energy crises.

But this doesn’t go far enough, head of the country’s Court of Auditors Pierre Moscovici, former EU Commissioner for Economy and Financial Affairs (2014-2019) and former Economy minister (2012-2014), told EURACTIV.

“Debt reduction efforts are a long time coming,” he said, warning that the French government’s economic projections were rooted in “optimistic” growth numbers. Unlike what the ministry predicts, Moscovici expects the public deficit could actually go up again next year.

“In 50 years, public spending never went down in France,” he added. According to him, spending heavily on public services is a French cultural trait “which has not yet been lifted”.

While both Germany and France had the same levels of public debt in 2001, standing at 58% of GDP, it went up eight percentage points for Germany in 2022, 36 percentage points for Italy and 53 percentage points for France.

Fiscal Rules: Go for growth

The Commission’s communication on the reform of the EU’s fiscal rules shows that economic growth is now favoured over austerity as the most useful tool to guarantee debt sustainability.

Flexibility with EU debt rules

The Commission’s recent proposal to review the Stability and Growth Pact comes at an opportune moment, Moscovici explained.

“EU debt rules didn’t work in the past, and they will not work in the future,” he said.

Rather than the current one-size-fits-all approach, the Commission now proposes to give highly-indebted member states more time – four years minimum – to bring their debt levels closer to the 60% of GDP threshold, on a country-by-country basis.

Moscovici recalled that as Commissioner he had already introduced a “notion of flexibility” in public finance analyses, which, in the past, had prevented Spain, Portugal and Italy from being fined for excessive debt levels. This could have otherwise hampered economic recovery, following the 2011 euro crisis.

Germany however complained that the latest revision isn’t strict enough, arguing that it gives the Commission too much leeway, instead asking for “common safeguards” that all countries must refer to when reducing public debt levels to be brought back.

Is Germany being too radical and hawkish?

“It is for EU ministers to decide, though reducing public debt levels by one percentage point a year is not insurmountable,” Moscovici said.

German Finance Minister Christian Lindner initially proposed that countries be obliged to reduce their public debt by 1% of GDP yearly. The Commission’s proposal instead suggests that public debt must fall between the beginning and end of a reduction plan – though by how much remains to be determined on a case-by-case basis.

All it takes is political willingness, the former Commissioner added.

German finance minister gathers fiscal hawks ahead of debt rules debate

Germany’s finance minister Christian Lindner (FDP) has teamed up with 10 colleagues from Central, Eastern and Northern EU countries to call for strict fiscal rules ahead of a debate among EU finance ministers. 

Ensuring a fair green transition

All in all, “degraded” public finances become a critical problem as France and Europe are faced with the ever-growing imperative to finance the green transition.

“It is high time we become audacious and innovative,” said Moscovici, adding that this would require a society-large debate on what needs financing, and how we get there.

This comes amid a growing discussion for a “green tax” on the richest households – a policy initiative recently aired in a maiden report by the government-affiliated think tank France Stratégie, which estimates that an annual €66 billion by 2030 is necessary for a just transition in France, €34 billion of which ought to be public cash.

Is there a risk the yellow vests movement, which had rebelled against a fuel tax in 2018, come back to the fore?

“They weren’t against green taxation – only the most affected need to be adequately compensated,” Moscovici explained.

At a European level, measures to relax state aid and leverage EU financing through a new ‘Strategic Technologies for Europe’ platform are steps in the right direction, he added, claiming Europe needed to achieve an effective transition “without falling into protectionism”.

Green transition: Member states must ‘free themselves’ from financial markets, expert says

Member states must look to financing options other than public debt and taxation to support the green transition and free themselves from debt repayments, French financial economist Jézabel Couppey-Soubeyran told EURACTIV France in an interview.

[Edited by Nathalie Weatherald]