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03/12/2016

Commission delays French deficit procedure

Euro & Finance

Commission delays French deficit procedure

Trainees of ECHO volunteering in the Open Day Event of European Commission. [EU/ECHO/Erica Savazzi/Flickr http://bit.ly/1HIu8px]

The Commission has given itself until March 2015 to decide how to handle France’s excessive budget deficit. EurActiv France reports

The Commission is due to publish its assessment of the member states’ 2015 budgets this Friday, 28 November. The European executive has decided to postpone its decision on France’s excessive deficit, a procedure that has been open since 2013. They will reexamine the subject when the final financial statistics for 2014 are available.

Diplomatic delay

This delay is a diplomatic move by the new Commissioners, who are reluctant to act hastily, despite mounting tensions between various member states.

>> Read: French Socialists call for Oettinger to resign

This delay will also give the Commission extra time to decide whether Paris had made concrete efforts to reduce its deficit, which only failed because of circumstances beyond their control. The Commission’s hand will be forced to some extent by the new “Two-Pack” regulation, which leaves very little room for interpretation.

The consequences of breaking the rules

According to article 126-9 of the Lisbon Treaty, the Commission must carry out a very strict evaluation of the policies put in place since the excessive deficit procedure was opened against France.

This article has only been invoked once so far: against Belgium in 2013. The very real constraints placed on the Belgian government during the procedure encouraged them to act swiftly, rectifying the situation in under a year.

France’s position is rather more delicate, as it represents one third of the eurozone economy. If the Commission were to rigorously apply the rules, the next step in the excessive deficit procedure would be for France to submit almost entirely to financial governance from Brussels.

Specifically, this would mean that the Commission would have to re-examine the French economy every three months, handing down precise and binding guidelines. This is a very intrusive procedure: instead of presenting objectives for France to aim for, Brussels would impose real measures, like changes to national health insurance and pension plans.

Paris is already beginning to offer concessions to Brussels, like the deregulation of certain professions, in the hope that they may work in its favour when the time comes for the Commission to make its decision.

Sanctions and pseudo-sanctions of the “Two-Pack”

A new legislative package, the “Two-Pack“, came into force in May 2013, making the rules governing the excessive deficit procedure stricter and more complex. Under this new law, the Commission is obliged to impose sanctions on countries whose deficits consistently fall outside acceptable levels. Fines, calculated as a percentage of GDP, must be agreed by the European Council, which has the power to reduce them to the symbolic amount of 0% if it sees fit; a pseudo-sanction that may please the French Commissioner for Economic Affairs, Pierre Moscovici.

>> Read: Pierre Moscovici rejects economic sanctions for member states

A source in the Commission confirmed that France is “clearly in a difficult position regarding its figures. But when we are dealing with a country that represents a third of the [eurozone], the question inevitably becomes more political than economical”. 

Background

The excessive deficit procedure is laid out in article 126 of the treaty on the functioning of the European Union. This article obliges the member states to avoid excessive deficits in national budgets.

The Commission evaluates the data and the Council decides what constitutes an excessive deficit. The Commission puts together a report, taking into account all the factors (economic conditions, reforms, etc.) that may be relevant for deciding whether the deficit is excessive.

If the Council decides that a member state's deficit is excessive, it begins by making appropriate recommendations. The state concerned then has a precise timescale in which to bring the situation under control. If the state does not conform to the recommendations, the Council give them formal notice to take measures to reduce the deficit. If required, the Council is able to hand out sanctions or fines, or to invite the European Investment Bank to review its lending policy regarding the state concerned.

A deficit is considered excessive if it is above 3% of GDP. A 1997 Council regulation clarifies and accelerates the excessive deficit procedure.