17th Mar 2018

EU unlikely to punish France for budget lapse

  • Ayrault said he was 'shocked' by the self-immolation in Nantes (Photo: OliverN5)

France predicts it will fail to meet EU budgetary targets this year, but the European Commission is unlikely to take action.

French Prime Minister Jean-Marc Ayrault told national TV on Wednesday (13 February) that the EU target of 3 percent budget deficit by the end of this year is slipping out of reach.

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"We won't be there exactly at 3 percent in 2013 for a simple reason because growth in France, in Europe and the world is weaker than expected," he said.

"We won't be far off … The objective, and this will be achieved, is to have zero deficit by the end of the quinquennium [2017]. What counts is the trajectory," he added.

French foreign minister Laurent Fabius and budget minister Jerome Cahuzac made similar statements earlier the same day. "The probability of hitting this target [3%] has been reduced as growth has been fading," Cahuzac said.

Under the terms of the EU's fiscal compact treaty, which entered into force on 1 January, the commission can fine profligate countries and give the money to its Luxembourg-based bailout fund, the ESM.

But the guardian of the treaty, economic affairs commissioner Olli Rehn, also on Wednesday signalled he will take a soft approach.

"If growth deteriorates unexpectedly, a country may receive extra time to correct its excessive deficit, provided it has delivered the agreed structural fiscal effort. Such decisions were [already] taken last year for Spain, Portugal and Greece," he said in a letter to eurozone finance ministers published on his website.

Rehn also defended the commission's pro-austerity policies.

In a nod to recent comments by the International Monetary Fund (IMF) that European budget cuts risk harming economic recovery, Rehn said the austerity/growth debate "has not been helpful and has risked to erode the confidence that we have painstakingly built up over the past years in numerous late-night meetings."

He noted that Belgian and Italian costs of borrowing have fallen on the back of budget cuts.

"Carefully calibrated fiscal consolidation remains necessary in Europe," he added.

France plans to cut €38 billion from public spending in 2013.

But its original 2013 budget plan was based on forecasts of 0.8 percent growth, while economists now predict French growth to stay at 0.1 to 0.3 percent.

In a reminder of what the crisis is doing to average people, a 43-year-old unemployed man committed suicide by setting himself on fire outside a job centre in Nantes, in western France, on Wednesday.

He said in a note sent to a local newspaper that he did it because he was refused unemployment benefit.

Ayrault said the incident caused "shock ... very strong emotion" and called the economic situation a "human drama."

More than 3 million people, or 11 percent of the workforce, cannot get a job in France. The figure is more than 25 percent in Greece and Spain.

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Until recently, Brussels has supported primarily front-load austerity measures. When President Hoover tried similar policies in the 1930s America, a severe recession morphed into a devastating Great Depression.

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