On 12 February 2008, the Council examined the updated stability programme of France which covers the period 2007 to 2012, one year more than the required reference period to coincide with the government programme. Between 2001 and 2005, annual real GDP grew by just above 1,5 % on average. This was in line with average growth in the euro area, while inflation was marginally below the euro average. Since 2006, GDP growth in France has fallen below the euro area average, with evidence of structural problems and a related deterioration in competitiveness. Although the unemployment rate has improved since 2005, it remains well above the euro area average, and the employment rate and the hours worked are still low.

The main goal of the budgetary strategy in the update of the stability programme is to significantly curb public expenditure, in a context in which growth is assumed to strengthen through the adopted and announced structural reforms, in order to achieve the medium-term objective (MTO) of a balanced position in structural terms (i.e. the cyclically-adjusted balance net of one-off and other temporary measures) in 2012 at the latest.

In view of the risk assessment above and the fact that the structural balance would hardly improve in 2008 and thereafter improve by close to 0,5 percentage points of GDP on average per year, the budgetary stance in the programme is not sufficient to ensure that the MTO is achieved by 2010 as planned in the previous programme and may not be sufficient to be achieved even by 2012 as envisaged in the programme.France is at medium risk with regard to the sustainability of public finances. The long-term budgetary impact of ageing is slightly lower than the EU average, with pension expenditure showing a somewhat more limited increase, as a result of the pension reforms already enacted.

Overall conclusions
The overall conclusion is that the pace of budgetary consolidation and debt reduction has slowed down in 2007 and is planned to be significantly less ambitious in the coming years than planned in the previous update of the stability programme, especially as concerns 2008. The envisaged consolidation is back-loaded and the achievement of the MTO through an expenditure-based adjustment is postponed from 2010 to 2012 under the more plausible of the two macroeconomic scenarios presented by the French authorities. Structural reforms will be crucial to increase potential growth, improve competitiveness, and sustain the budgetary consolidation process. The programme objectives are also subject to risks stemming from the macroeconomic assumptions, which are favourable and the assumptions on the impact of structural reforms on growth. In view of the debt and deficit levels and the projected increase in age-related expenditure, France appears to be at medium risk with regard to the sustainability of public finances.

France is invited to:

1. Strengthen the pace of budgetary consolidation and debt reduction, including through a rigorous implementation of the 2008 budget, so as to ensure that the safety margin against breaching the 3 % deficit threshold is attained more rapidly and — cyclical conditions permitting — aim to reach the MTO by 2010, in order to decisively contribute to the improvement of the long-term sustainability of public finances;
2. Effectively enforce existing expenditure rules and take further steps in order to guarantee the respect of the ambitious multi-annual expenditure reduction targets of the general government by all sub-sectors, thus leading to a reduction in the expenditure to GDP ratio;
3. Continue and accelerate structural reforms, so as to increase potential growth and curb public expenditure.