• Moscovici (l): 'I respect very much the position and role of the commission' (Photo: ec.europa.eu)

Rehn praises Paris on 'prudent' budget cuts

26.09.13 @ 16:41

  1. By Benjamin Fox
  2. Benjamin email

BRUSSELS - France's budget plans are “responsible and prudent” Olli Rehn said Wednesday (26 September) in a sign of rapprochement between the EU and the eurozone's second largest economy.

Speaking to reporters in Brussels following talks with French finance minister, Pierre Moscovici, the EU's economic affairs chief praised what he described as a “huge effort to restore public finances.”

However, he warned Paris to keep up plans to reform the country's labour market and welfare system commenting that the “ambitious reforms over the last year should be maintained.”

The meeting comes a day after Moscovici presented plans to save an additional €18 billion from next year's budget to the National Assembly in Paris.

Rehn has had an uneasy relationship with French President Francois Hollande's socialist government.

Last month, the commissioner used an interview in the French media to warn Paris that raising taxes would “destroy growth and handicap the creation of jobs."

For his part, Hollande has accused the EU executive of attempting to “dictate” policy.

The EU executive has also been frustrated by France's failure to bring down its budget deficit below the 3 percent threshold laid out in the bloc's stability and growth pact, giving the country a two year extension to meet the commitment in May.

Moscovici conceded that France would run a higher than forecast 4.1 percent this year, falling to 3.6 percent in 2014 and to 3 percent in 2015.

Meanwhile, 20 percent of new budget savings in 2014 would come from tax rises with all savings coming from spending cuts in 2015. The government would also reform the pension system and cut labour costs to increase competitiveness, he said.

Both men were keen to play down talk of disharmony. R

Rehn told reporters that the commission's role was merely to make sure that commitments made by governments were respected.

“The new rules are aimed at preventing rather than correcting problems,” he said.

Moscovici insisted that there is no tension with Brussels.

“I respect very much the position and role of the commission ... this a normal dialogue,” he noted.

After over a year of stagnation, the French economy expanded by 0.5 percent in the second quarter of 2013, an encouraging sign that the eurozone's second largest economy would grow over the course of the year. However, growth is only expected to be an anemic 0.9 percent in 2014.

Meanwhile, the country's debt to GDP ratio is set to peak at a record 95 percent in 2014 before starting to fall the following year.