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.
— Cour des comptes (@Courdescomptes) June 29, 2017
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.
“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.
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.
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.