Wednesday

20th Nov 2019

EU gives France until 2017 to fix deficit

  • Pierre Moscovici: a country should be encouraged rather than sanctioned

The European Commission on Wednesday (25 February) gave France another two years to bring its budget within EU rules - the third extension in a row - saying that sanctions represent a "failure".

France has until 2017, having already missed a 2015 deadline, to reduce its budget from the projected 4.1 percent of GDP this year to below 3 percent.

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"Sanctions are always a failure," said economic affairs commissioner Pierre Moscovici adding that "if we can convince and encourage, it is better".

He said the decision was taken "on the basis of our own rules" but admitted that the wider political context also played a role noting that the commission was aware of the difficulty of the adoption of the recent reforms - which saw the French government over-ride parliament in a little-used constitutional manoeuvre.

"We decided to let them proceed with reforms and keep up the pressure," said Moscovici.

Part of the pressure will come in May when the commission is due to assess whether France has achieved a 0.5 percent reduction in its structural deficit.

Valdis Dombrovskis, a commission vice-president dealing with euro issues, admitted that France is the "most complicated" case discussed on Wednesday.

Paris is in theory in line for a fine for persistent breaching of the euro rules.

However the politics of outright punishing a founding member of the EU, a large member state, and a country where the economically populist far-right is riding high in the polls, has always made it unlikely that the commission would go down this route.

In addition, the current commission came to power promising a more flexible approach to the rules as it seeks to boost growth in the EU.

Instead of outright black marks, both Moscovici and Dombrovskis underlined that France's reforms go in the right direction but are not enough and that a further reform package is expected in April.

However the new 2017 budget-cutting deadline is unlikely to prove any more politically palatable for President Francois Hollande, being also the year that France holds presidential elections.

Meanwhile, the commission also held back on Italy and Belgium, who were both in the firing line for their large public debt, well above the 60 percent allowed by the stability and growth pact.

The commission said that taking formal steps against both countries was "not warranted".

If Brussels did not take action over those with debt and deficit problems, it also avoided confronting Germany which is running a large trade surplus, with critics saying Berlin needs to do more to boost domestic demand to help the wider eurozone.

Instead it received a political rap over the knuckles.

Germans are "rightly proud" of their export success, said Moscovici, but added that the commission cannot "close its eyes" to the insufficient private and public investment in the country which risks becoming a "drag" on growth.

He urged Berlin to take "decisive policy action" to counter it.

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