9 FEBRUARY 2012

The General government debt is likely to near 90% of GDP by end-2012 according to National Auditors latest Annual Report, a gap above the European Union average, and the deficit reduction, to 4.5% of GDP against the current 5.7% will depend on the evolution of the economic context « very uncertain in the coming months » since government projections are based on a favorable short-term outlook.

The report authors remain skeptic about a 2012 debt reduction and consider that the € 6.6 billion precautionary reserve set aside by goverment to fill the gap if necessary, may only « partially offset » the financial imbalance.  The report therefore considers a deficit reduction beyond 2012 to 3% of GDP as an « extremely difficult » target to meet unless new (austerity) measures are undertaken.
On a more dramatic yet still cautious tone, and according to the report « if the structural deficit reduction projected in the financial stability program was to be missed, the public debt could keep increasing to 100% of GDP in 2015 and 2016 ».

Equally to the Court's previous report, the Annual report considers that the major risk incurred in such a scenario is the global debt level, each public and private,  overwhelming owned by non residents, « an essential problem which must be reduced by offsetting the current accounts balance ». The Court recommends accrued  efforts, of at least 3% of GDP to reduce the public debt while acknowledging the previous plans, € 100 billion mix of spending cuts and tax increases implemented from 2011 or 5% of GDP, and the 2012 target or 1.5% to 2% of GDP.  Therefore the Court considers new social security and income taxes as « necessary » to increase government income as a « fiscal strategy on the medium term with the aim to reinforce potential growth and the labor market » in an equitable way.