Wednesday

20th Nov 2019

Sarkozy proposes constitutional change to limit deficits

  • Europe's debt problems started in Greece, and are at the heart of France's latest move (Photo: consilium.europa.eu)

French President Nicolas Sarkozy has said the country's constitution should be amended, obliging future French governments to set out budgetary targets at the start of each new term.

The centre-right leader made the announcement at a "conference on deficits" in Paris on Thursday (20 May), detailing plans that would see newly-installed administrations outline deficit or surplus targets for their five years in office, starting from 2012.

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The move bears more than a passing resemblance to an initiative carried out in Germany last September, although Berlin's changes go further by including deficit limits within the Federal Republic's constitution. As a result, German governments are now forbidden from running a deficit of more than 0.35 per cent of GDP by 2016.

Berlin would like to see similar schemes adopted elsewhere in Europe, in a bid to crackdown on the high deficit and debt levels that have spooked markets and resulted in the greatest crisis in the eurozone's 11-year history.

It emerged this week that German finance minister Wolfgang Schaeuble has been working on a nine-point plan for eurozone stability, including the adoption of similar constitutional budgetary brakes in other members states.

The proposals are expected to be presented at a meeting this Friday in Brussels on greater European economic co-ordination, to be chaired by European Council President Herman Van Rompuy.

Observers have suggested the latest French move represents something of a trade off between French calls for the rapid establishment of a permanent eurozone crisis fund, and German desires for other countries to adopt similar debt brake laws.

French officials confirmed on Thursday that discussions between the two sides on the subject have been going on for "a long time," but also pointed to a working group set up by Mr Sarkozy in January to look at the country's budgetary laws. The group is headed by Michel Camdessus, a former director general of the IMF.

France's deficit currently stands at 7.5 percent of GDP and is forecast to hit 8.2 percent this year. The government has told the European Commission it will bring it below three percent by 2013, the maximum threshold allowed under EU-wide rules that have been largely ignored by member states in recent years.

Any constitutional change is likely to be carried out by a parliamentary vote and not by public referendum, the French officials indicated.

Europe-wide move?

Although the Austrian parliament is also set to vote on similar constitutional budgetary restrictions this week, it is unclear to what extent other countries will follow suit.

Analysts warn that if handled badly, the changes could further exacerbate market fears. "There are a lot of difficulties in extending the German debt brake," says Fabian Zuleeg, chief economist with the European Policy Centre, a Brussels-based think-tank.

"In Germany, the constitutional court will take an active role in ensuring the constitutional change is implemented. But I would expect similar moves to have much less teeth in other countries where governments have a stronger hand, and markets will be aware of this," he said.

Reactions among German politicians to the French move were mixed. Finance minister Wolfgang Schaeuble said he was "honoured" that France was considering a similar scheme, offering to provide "advice" to Paris, were it to be requested.

He also said constitutional budgetary limits were easier for European citizens to stomach, rather than being told that spending limits were "coming from Brussels."

Opposition politicians were more sceptical, however. German Green MP Kerstin Andreae said it was unclear whether the German system could be rolled out across Europe, while Social Democrat member Klaus Barthel told journalists that France's move was a mistake.

"It is a fiscal policy that does not correspond to economic necessities. This is why we have to try to embark on a path of consolidation in Europe where resources are generated by growth and employment," he said.

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