Wednesday

4th May 2016

French court to decide on EU fiscal treaty

  • If the judges take a hard line, ratification is unlikely before December (Photo: Anirudh Koul)

A verdict by French jurists, expected on Thursday (8 August) or Friday, risks dealing another political blow to the EU's fiscal discipline treaty.

The Constitutional Court in Paris is to rule whether the treaty's provisions on keeping a balanced budget can be put in place using ordinary French law, or whether the French charter needs to be altered, as with the treaties of Maastricht, Amsterdam and Lisbon.

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If the judges take the softer option, President Francois Hollande is expected to push the budgetary law through parliament in late September.

But if they take a hard line, the lower house and the upper house will have to convene a special joint meeting in October/November, delaying ratification of the treaty until December, or Hollande will have to call a referendum.

The budgetary law - which obliges countries to stick to a structural deficit of 0.5 percent of GDP in normal circumstances - is at the heart of the new treaty.

Agreed by 25 out of 27 EU leaders in March, the intergovernmental agreement was a pre-condition for Germany to approve the EU's permanent bailout fund, the ESM, which France and other southern euro-countries had pushed for.

The fiscal treaty is due to come into life on 1 January, but only if at least 12 out of the 17 eurozone member states in the group-of-25 have completed ratification by then.

Just five eurozone countries have ratified it so far - Cyprus, Greece, Ireland, Portugal and Slovenia.

Austria, Italy and Germany have also completed parliamentary approval, but not the formalities of ratification, with Germany's constitutional court to rule on 12 September whether the treaty and the ESM are compatible with the German charter or not.

Another five non-eurozone states - Denmark, Sweden, Latvia, Lithuania and Romania - have also ratified the text.

Amid increasing talk of a Spanish state bailout and a Greek euro exit, any French delay is likely to further unnerve markets.

Meanwhile, a new economic forecast from the French central bank on Wednesday cast doubt on whether it can stick to its EU promise to reduce its national deficit to 4.5 percent of GDP this year and 3 percent next year.

The bank said the French economy will shrink by 0.1 percent in the current quarter, amid plunging exports to EU trade partners.

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