Thursday

22nd Aug 2019

France wins two-year reprieve on deficit

  • Are some member states more equal than others? (Photo: Trey Ratcliff)

French finance minister Michel Sapin has indicated that a decision by the European Commission - endorsed Tuesday (10 March) by member states - to give Paris more time to obey EU deficit rules will stave off the rise of extremist political forces.

"Europe is there to help us, it’s not there to punish us,” he said after the meeting. “Every time people talk about punishment, they’re not helping democracy, they’re helping the extremes.”

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His comments were an apparent reference to the far-right National Front, which is currently topping polls ahead of local elections later this month.

He said Tuesday's decision to give France until 2017 - its third extension to date - to bring its deficit to under the 3 percent of GDP was the result of "good work" by the government.

But the decision has had a political price.

It has given rise to political criticism that the euro rules have been fatally undermined and given others cause to ask for flexibility too. Former EU economics commissioner Olli Rehn last week said the commission should have had the "guts and sense" to tell France it had not carried out enough reforms to justify a reprieve.

Benoit Coeure, a member of the European Central Bank's executive board, told the Financial Times that the eurozone bank is "frustrated" and fears that recently-agreed budget rules - meant to prevent a re-occurrence of the financial crisis - were "unravelling".

He also honed in on the perception that France is being given leeway because it is a big country.

"It's always extremely important in Europe to avoid a situation - or even to avoid the perception - that large countries are treated in a more benevolent way, in a more generous way, in a more flexible way than smaller countries. That would be contrary to the very spirit of European construction."

Ireland speaks up

This perception was raised by both the Irish and Spanish ministers during a meeting of euro finance ministers on Monday.

Irish finance minister Michael Noonan said he had spoken to his German counterpart, Wolfgang Schaeuble, to say Dublin also wants flexibility in the rules - with Berlin's tacit green light seen as key to Paris getting the extra time.

"We need flexibility as well," said Noonan.

He indicated that the commission is applying rules in too technocratic a way and not taking account of "reality" on the ground.

Dublin wants to have an expansionary budget in autumn this year, but feels constrained by how the euro rules are being applied.

"We are moving from the corrective arm of the procedure to the preventive arm because our deficit is going below three percent and new rules apply - and one of them is that you cannot spend more than your growth rate", Noonan said.

Commission officials have calculated the growth rate at 0.6 percent whereas new statistics show that the country - which recently exited a bailout - is growing at 3.5 percent.

Noonan said he wanted "breathing space" for the budget, noting that the country "will still be able to bring the deficit down next year".

He said that so far Dublin sees "no sign" of the rules being enforced unevenly, but indicated this assessment rested on how Dublin's complaint is handled.

"Rules have been applied fairly up until now," he said.

Language hoops

Meanwhile, the wording on the French decision shows the political and linguistic hoops the commission had to go through in order to find that Paris had, as the rules required, taken effective action to cut its budget deficit in 2013 and 2014.

"The available evidence does not allow to conclude on no effective action," it said.

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