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06/12/2016

Paris, Berlin secretly discuss French budget deal

Euro & Finance

Paris, Berlin secretly discuss French budget deal

Emmanuel Macron: "Our aim is to use the time until the December summit."

[France.fr]

Germany and France are secretly discussing a deal to enable the European Commission to approve Paris’s draft 2015 budget even though it breaks past deficit-cutting commitments, German weekly Der Spiegel said yesterday (19 October).

The two governments are working on a written agreement under which France will provide the Commission with a detailed roadmap for deficit reduction and structural reform, the weekly reported, without naming its source.

In return, Germany would overlook France’s repeated flouting of its pledge to bring its budget deficit inside the eurozone’s 3% of national output ceiling and oppose any sanctions that the European Commission might propose.

France presented its contested draft 2015 budget to Brussels on Wednesday and risks becoming the first eurozone country to have its fiscal plan rejected under new rules which could eventually lead to Paris having to pay fines.

Berlin, despite its strong advocacy of fiscal discipline, is not keen to trigger a full blown clash between the eurozone heavyweights, Der Spiegel reported.

One high-ranking member of the German government was quoted as saying official rejection of the French budget by the Commission would “massively hurt German-French relations”.

At the same time growing evidence of economic stagnation in the single currency area has increased pressure on German Chancellor Angela Merkel to take a less rigid stance.

However, Berlin politicians argue in public that it is not up to the two capitals to strike a deal on behalf of the Commission. “The plans for France’s budget is with the European Commission,” said a finance ministry spokesman. “It must evaluate the plans and then make a decision.”

France’s budget ministry declined to comment.

At a joint news conference in Berlin earlier this week the foreign ministers of both countries said there was no agreement between France and Germany for the eventuality that the Commission would reject the budget.

France argues that austerity measures would be counter-productive due to weak growth and it needs two more years to get to grips with its deficit.

France’s budget and economy ministers meet Germany’s finance and economy ministers in Berlin on Monday. The two countries’ economy ministers have already asked experts to come up with reform recommendations for both countries.

French Foreign Minister Laurent Fabius said this week the structural deficit, which is adjusted for economic fluctuations, would next year be at its lowest level for 14 years, suggesting the Commission might want to focus more on that. 

French Economy Minister Emmanuel Macron said yesterday he was sure the European Commission would not reject Paris’s 2015 budget although it breaks EU deficit limits.

“I am totally sure at this stage that there will be no negative opinion from the Commission,” he said in a joint interview with RTL radio, LCI television and Le Figaro daily.

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 puts together a report, taking into account all the relevant factors (economic conditions, reforms, etc.), and the Council assesses whether or not 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 turn the situation around. If the state does not conform to the recommendations, the Council give them formal notice to take deficit reduction measures.

If required, the Council is able to hand out sanctions or fines, or to invite the European Investment Bank to review its lending policy to the state concerned.

The European Union's budget rules faced their biggest test in over a decade last week, after France presented a draft 2015 budget breaking past commitments to rein its deficit back to within EU limits.

>> Read: France challenges EU rules with 2015 budget

 

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