6th Mar 2021

France and Germany to escape euro rule punishment

According to press reports, the European Commission will soon suspend disciplinary procedures against France and Germany for repeatedly breaching the rules underpinning the euro, bringing to an end a long period of uncertainty and acrimony.

The disciplinary procedures – which can result in billion euro fines – were initiated against Paris and Berlin for failing to adhere to the rules of the EU’s Stability and Growth Pact.

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This Pact states that EU members may not have budget deficits higher than three percent of gross domestic product (GDP).

According to French daily Le Monde, Brussels is set to bring a halt to the proceedings for France because it estimates that Paris will succeed in dipping below the three percent bar in 2005.

The Commission will analyse Germany’s budget plans, which must be submitted before 1 December, before deciding whether to halt the procedure for Berlin. If Germany is judged able to rein in its deficit, the procedure will be halted for them also.

Both France and Germany have for years had deficits above the three percent limit, mainly due to a slowdown in growth.

Acrimonious period

If confirmed, the halting of the procedure would bring to an end a long period of acrimony between the European Commission and the two biggest economies in the euro zone.

This acrimony reached a high point in November last year when France and Germany persuaded other EU finance ministers to suspend the procedure initiated by Brussels.

This infuriated the Commission, which promptly went to the European Court of Justice and won its case against the Member States.

But the atmosphere has since calmed considerably and technical work is now underway to reform the Stability and Growth Pact to take the individual economic situation of Member States into account more when applying the Pact.

The Commission will formally take its decision on France and Germany in mid-December.

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