France pledges to meet EU deficit target, despite strong headwinds

French Prime Minister Edouard Philippe during a press conference after a meeting with Prime Minister of Estonia Juri Ratas. Tallinn, 28 June. [Valda Kalnina/EPA]

France will meet the EU deficit limit of 3.0% of GDP in 2017, the prime minister insisted Thursday (29 June), after the public accounts watchdog said it would miss the mark unless it took urgent action.

“We commit to rein in the deficit to 3.0% this year: we will do it not by raising taxes, we will do it through making savings,” Edouard Philippe said.

The Court of Auditors said earlier Thursday that in the absence of “strong adjustment measures” the gap between spending and revenue would reach 3.2% of GDP, exceeding the eurozone limit of 3.0% of GDP.

Warning

It was seen as a warning to new President Emmanuel Macron, who will produce his first budget in the autumn.

The previous Socialist government had said it expected the deficit to fall from 3.4% last year to 2.8% this year, which would have brought France in line with EU rules for the first time in a decade.

But the auditors said France was currently €8.0 billion off the target and accused the Socialists of “insincerities” in their forecasts, saying they routinely underestimated spending.

Philippe called the Socialist government’s estimations “unacceptable”.

“It’s as if the previous government drew up a budget and forgot all about the justice ministry’s budget,” Philippe complained.

Macron himself served in France’s Socialist administration as economy minister under François Hollande between 2014 and 2016.

Juncker warns Macron French spend too much money

European Commission chief Jean-Claude Juncker on Monday (8 May) called on France’s incoming president Emmanuel Macron to cut public spending, saying its current policies involved too much money going to wrong things.

“Unprecedented” savings needed

The auditors said meeting the current 2017 target would require “unprecedented” savings, and called for spending across public services to be reined in.

Economy Minister Bruno Le Maire warned of “difficult decisions” ahead.

Ruling out further increases in tax, which increased sharply under the Socialists, he said all levels of government would have to tighten their belts.

Over the past four years France has won two extensions to the EU’s deadline for it to rein in spending.

The European Commission has, however, ruled out bending the rules a third time.

France wins EU approval for two-year reprieve on deficit

European finance ministers on Tuesday (10 March) approved a controversial two-year extension for France to get its deficit within the bloc’s limits, despite accusations that bigger member states are treated more leniently than smaller ones.

Background

Barroso urges ‘credible reforms’ in France in return for deficit grace period

European Commission President José Manuel Barroso urged France on Wednesday (15 May) to push ahead faster with economic reforms in return for being granted two more years as promised to bring its budget deficit below the EU limit. The Commission will present more detailed recommendations to France on 29 May.

However, France declared it would not meet the 2015 deadline, and would only hit the target in 2017.

This placed Paris under the threat of fines, of up to €4 billion.

After examining the situation, the Commission proposed giving the country another two-year extension, until 2017, calling on France to bolster efforts to get its budget back in order.

This triggered sharp criticism from EU budget hawks, such as Germany's centre-right. “If the Commission is too flexible on the growth and stability pact (budget rules) for political reasons – it has to be aware there will be consequences,” said Wolfgang Schäuble, Germany’s Minister of Finance.

German centre-right ‘disappointed’ over extension of French deficit deadline

France was required to comply with EU deficit restrictions by 2015, but the European Commission is giving the country an extension until 2017, garnering sharp criticism from Germany’s centre-right in the European Parliament. EURACTIV Germany reports.

A key official at the European Central Bank warned at the time that the rules were being undermined with major economies treated more leniently than smaller ones.

“It’s always extremely important in Europe to avoid a situation – or even to avoid the perception – that large countries are treated in a more benevolent way, in a more generous way, in a more flexible way than smaller countries,” ECB executive board member Benoit Coeure told the Financial Times.