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21st Feb 2024

France gets three months to tweak budget

  • Dombrovskis (l) oversees the work of Thyssen (c) and Moscovici (r) (Photo: ec.europa.eu)

EU economics commissioners on Friday (28 November) defended "political" reasons for giving France more time to fix its budget deficit, while urging Germany to spend more in an attempt to revive the eurozone economy.

The trio of EU commissioners - vice-president Valdis Dombrovskis in charge of "the euro and social dialogue”, and his two subordinates, Pierre Moscovici (economics and taxation) and Marianne Thyssen (employment and social affairs) - presented a raft of reports linked to the EU economy and national eurozone budgets.

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France got all the attention because it should have been found in breach of its obligations under the "excessive deficit procedure”.

The rules say it should reduce its budget deficit to three percent of GDP by the end of next year and that it should undertake structural reforms to achieve this.

But France got three extra months, along with Italy and Belgium, whose sins are related to ballooning debt and who don't risk sanctions as they are not under the "excessive deficit procedure" as in the case of France.

Dombrovskis - a former Latvian prime minister who implemented harsh austerity measures in his country in the wake of the financial crisis of 2008 - said France could still face punitive measures if, in March, its actions are deemed insufficient.

Moscovici - a former finance minister of France, who is partly responsible for his country's current woes - claimed that Brussels and Paris have a “constructive dialogue”.

He noted the extra time is needed to properly assess France's economic data.

"This is not wasted time, this will allow us to make progress, refine our efforts and look at the reforms pledged," Moscovici said.

He explained that there are "political considerations" on the French deadline extension, including the fact the new commission team is only in place for a month and had little time to do its homework.

Moscovici added that he is "on the same line" as Dombrovskis and commission chief Jean-Claude Juncker.

Asked about the dissenting German commissioner - Guenther Oettinger, who in an op-ed published in French and British media urged the commission to be strict on France as a matter of EU credibility - Moscovici said: "There are two commissioners who speak on these matters - Mr Dombrovskis and myself - and nobody else”.

As for Germany, Moscovici said that while it is compliant with the deficit and debt rules, it does have a fiscal surplus which it should use for "more investments" that would alleviate the woes of fellow eurozone countries.

The spend-more recommendation for Berlin is not binding, unlike the "make more structural reforms" obligation Paris has so far ducked out of.

Accounting tricks

Asked what to expect in March when the EU commission will again assess France's budget and reform pledges, Moscovici said the commission will make sure the "rules are respected with flexibility, but not with excessive creativity”.

But EUobserver understands that an accounting trick might get France off the hook.

The trick relates to how the "structural deficit" is calculated - either “bottom up" or "top-down".

The calculation will form the core of the assessment in March on whether France is complying with its obligations.

Last year, the EU commission demanded an effort to reduce the structural deficit by 0.8 percent.

With all its last-minute measures, France is close to reaching 0.3 percent.

This is according to the "bottom up" calculation. But, if the "top down" method is applied, France will be much closer to what the commission is asking: 0.9 percent compared to the commission demand of “over one percent”.

If “external factors” are then added to the cauldron - the more broadly depressed eurozone economy, high unemployment, and low spending - Brussels will most likely cook up a French let-off.

The accounting method needs to be approved by eurozone finance ministers, however.

Germany, which has so far pushed for rigour in sticking to EU rules, on Friday signalled there is some room for flexibility, but not so much as to give France a carte blanche.

German finance minister Wolfgang Schaeuble told German public radio that "we know that some of our most important partners at the moment are in a more difficult situation than us”.

"We know that we have a joint responsibility, that we also need to show solidarity”.

Schaeuble noted that Germany is sticking to the EU rules, adding that he wants others to do so "within their possibilities”.

As for Juncker, in an interview with several European newspapers on Friday, he said he has decided "not to give sanctions" because "countries don't like lessons”.

He added it would have been easy to punish them, since "we have rules, fines, sanctions”.

But he said he wants to give EU states as big a chance as possible to explain how they will correct their budgets before taking action.

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