Wednesday

26th Jul 2017

EU warns France on budget efforts

  • The commission wants France to cut public spending and taxes to reach its budget targets (Photo: Quinn Dombrowski)

France must take further action to cut its budget deficit to the EU's 3 percent limit in its upcoming emergency budget law, the European Commission said Monday.

The stark warning was contained in the commission's annual policy recommendations to 26 of the EU's 28 national governments, with Greece and Cyprus excepted because they remain in bailout programmes.

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Having had its original 2013 deadline to reduce its deficit below 3 percent extended by two years, France's deficit is forecast to remain at 3.9 percent of GDP in 2014, before dropping to 3.4 percent next year.

The commission says Paris can still meet its budget deadline and is reluctant to give a further extension, stressing that "additional efforts should be spelled out in the forthcoming amending budget law for 2014".

"On the basis of a constant policy without change, these objectives could be at risk," added President Jose Manuel Barroso.

"Risks to the government’s targets are tilted to the downside," warns the commission's report on France's finances, adding that "part of the additional measures for 2014 announced in the programme remains to be adopted and the planned amount of savings for 2015 is very ambitious."

Failure to heed commission warnings and cut debt and deficit levels can ultimately lead to a fine worth 0.2 percent of GDP.

The timing of the report, just a week after Marine Le Pen's far-right National Front won a decisive victory in France's European elections, could hardly be worse for embattled President Francois Hollande. His own Socialist party slumped to third place in the poll.

Having promised to prioritise tax rises rather than cuts to public spending in his attempts to balance the books, Hollande is now under mounting pressure from Brussels to slash taxes on businesses and individuals and make further cuts to health spending and pensions.

"Sizeable short-term savings cannot be achieved without reducing significantly the increase in social security spending," states the report by the EU executive.

Hollande has already spelt out plans to cut tax on companies by €30 billion if they promise to hire new workers and maintain investment, while recently-appointed Prime Minister Manuel Valls last week promised further tax cuts for low and middle income workers.

Meanwhile, Italy, Slovenia and Croatia, who are all said to have "excessive imbalances" in their economies, avoided the same fate as France. EU economics commissioner Olli Rehn commented that "their national reform programmes appropriately address the main challenges we identified in March".

The commission continues to urge Slovenia to stabilise its banking sector and Italy to speed reforms to its labour market and reduce its debt pile which, at 135 percent, is second in size only to Greece.

Six other countries - Belgium, the Czech Republic, Denmark, the Netherlands, Austria and Slovakia - all left the commission's 'watch list' having cut their deficits to below 3 percent.

The move means that the number of EU countries subject to the bloc's Excessive Deficit Procedure has fallen from 24 to 11 since the height of the eurozone crisis in 2011.

French deficit to come under the EU spotlight

France is expecting a fierce debate among EU finance ministers early this week over its backtracking on deficit-cutting promises, with President Nicolas Sarkozy insisting that the bloc should not "leave Europe in the hands of automatic rules" in both monetary policy and other areas.

Analysis

France falls victim to EU's economic powers

Being singled out for censure by the European Commission is nothing new for the government of Francois Hollande. But the timing of the latest veiled threat from Brussels could hardly be worse.

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