The EU Commission is preparing debt procedures for France and six other countries for their breach of EU spending rules.
“We have assessed the fiscal situation in member states, we have come to the conclusion that deficit criteria are not met in some countries, including in France,” said trade commissioner Valdis Dombrovskis on Wednesday (19 June).
On 1 January, after years of negotiations, EU member states agreed to re-impose the bloc’s fiscal rules. As a consequence all countries with deficits higher than three percent of GDP and debt ratios above 60 percent of GDP, will need to reduce debt according to the so-called excessive deficit procedure (EDP).
France is the largest economy to be in breach of the rules, followed by Italy, Poland, Belgium, Hungary, Slovakia, plus Malta also ran higher-than-allowed deficits.
The commission based its decision to warn these countries based on 2023 deficit figures, but also took into account expected budgets for 2024 and the following years.
Spain and the Czech Republic for example also exceeded three percent in 2023 but expected to dip below the limit this year. Estonia has similarly breached the limit, and is expected to remain above the benchmark. But with a debt ratio of only 20 percent it is far below the limit of 60 percent set by the so-called stability pact.
Even though the new rules are less strict than previous fiscal rules, which were suspended when the Covid-19 pandemic hit, they still bite.
Therefore, negotiations between member states and the commission may turn nasty before the year is over, especially if populist parties win the parliamentary election in France, which is headed for snap elections on 30 June.
Both the far-right Rassemblement National (National Rally) and the leftwing Popular Front have announced spending packages that would lead to a confrontation with the commission later this year, as it would increase deficits further in the short run.
Member states are expected to publish their mid-term debt reduction pathways this summer, and discuss it with the commission, which will then approve definitive debt-plans for these countries this autumn.
The Brussels-based think-tank Bruegel previously estimated that France would need to cut €15.7bn this year, or around 0.5 percent of GDP, based on the minimum reduction benchmark included in the fiscal rules.
But it is up to member states to decide where cuts can be made. This would however come on top of already announced budget cuts worth about €20bn.
Many have warned that re-imposing spending cuts, especially at this scale, would be a gift to the far-right, who were the main beneficiaries of the loss of trust associated with cuts to social welfare, healthcare and other social services, as many researchers have found.
But EU economy commissioner Paolo Gentiloni on Wednesday said that ”the theory is not entirely proved in my view” and pointed out that the high expenditure of the last few years have not been able to stem the far right advance.
Countries that refuse to comply can be fined. The new Stability Pact empowers the commission to issue sanctions of 0.1 percent of GDP per year on countries that do not implement suggested budget cuts. This would amount to €2.6bn for France, and €1.9bn for Italy.
“But it is way too early to talk about any possible enforcement steps,” said Dombrovskis when asked about a possible debt-showdown with France.
In reality the excessive deficit procedure has never led to a fine. France especially has been in an excessive deficit procedure for the majority of the time since the introduction of the euro currency over two decades ago.
But every French government has relied on its power and central role in the EU establishment to scare away any commission official brave enough to impose the rules.
This time it might be different, as commission officials are under pressure to enforce the new fiscal rules all member states have just agreed on.
“Whether a country respects the treaty for deficit and debt or not should not be based on the size of the country, I think that is obvious,” said Dombrovskis when asked if he would shy back from imposing sanctions on offending member states
“The fact that country’s can set their own debt reduction pathways, goes hand in hand with stronger enforcement,” he added.
Wester is a journalist from the Netherlands with a focus on the green economy. He joined EUobserver in September 2021. Previously he was editor-in-chief of Vice, Motherboard, a science-based website, and climate economy journalist for The Correspondent.
Wester is a journalist from the Netherlands with a focus on the green economy. He joined EUobserver in September 2021. Previously he was editor-in-chief of Vice, Motherboard, a science-based website, and climate economy journalist for The Correspondent.