Future of the French deficit hangs on election result

Marine Le Pen has not mentioned the budget deficit in her election campaign. [Camilo Rueda López/Flickr]

Emmanuel Macron has promised to respect the EU’s budget rules, while Marine Le Pen has hardly mentioned the issue in her campaign. But Brussels is preparing for tough talks on the French deficit once the new president is elected. EURACTIV France reports.

France is one of the last countries in the eurozone to bring its budget deficit under the threshold of 3% of GDP set by the Stability and Growth Pact. Its public finances are expected to pass this landmark in 2017, a first since 2007.

But the EU’s judgement on the French budget is due just after the second round of the presidential election, on 7 May, contested by liberal centrist Macron and extreme-right Le Pen. The European Commission will release its spring economic forecast on 11 May.

Published twice a year – in spring and autumn – this forecast is, among other things, an evaluation of the EU member states’ growth perspectives and the state of their public debt.

Last autumn, the EU executive waited until after the US presidential election before announcing its predictions.

Commission cuts growth forecast for both EU and eurozone in 2017

Europe’s economy will grow less than initially expected as domestic and global risks have intensified, mainly in the wake of the UK referendum and the increased opposition to globalisation.

On 16 May, the College of Commissioners will examine the recommendations for each country and then present its recommendations. All predictions are based on past economic data collected up to the end of April, not on any future budget choices expected from the next president.

For a decade, Paris has failed to align its budget with the 3% rule established under the 1992 Treaty of Maastricht. Presidents Nicolas Sarkozy and François Hollande both obtained extensions to Brussels’ deadlines, avoiding hefty fines.

Other EU countries have baulked at what they see as the Commission’s favourable treatment of Paris. But any leeway granted to France looks likely to end as Hollande leaves office.

In an interview with euractiv.com, Economic and Financial Affairs Commissioner Pierre Moscovici warned the presidential candidates not to use a change of leadership as a pretext to undermine France’s “budgetary credibility”.

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The EU executive expects the French deficit to reach 2.9% this year. This would be hailed as a success in Paris and Brussels, allowing France to leave behind the excessive deficit procedure and restore its credibility with its European partners.

Macron, the favourite to win the second round of the election, detailed his plans to make this happen in his economic manifesto. He has tabled €60 billion in state savings, of which some €40bn would be allocated to cutting the deficit. According to his calculations, this would bring the French deficit under 3% in 2017 and down to 1% by 2022.

In his programme, the former economy minister highlighted his commitment to “re-establish the trust of our European partners. […] This is (a) condition for a constructive discussion on our priorities for Europe.”

At the same time, Macron has announced €50bn in public investment across his five-year mandate, to stimulate private investment in the priority areas of the ecological transition and training.

But beyond this deficit reduction plan, some of Macron’s proposed measures, such as the inclusion of freelance workers in the unemployment insurance scheme and an end to housing tax for 80% of French people, could lead to an increase in state spending. Some analysts, such as business think tank Ceo-Rexecode, see these promises as incompatible with the 3% deficit target.

No solution, no problem

As for the National Front’s candidate, she simply rejects the European Stability and Growth Pact. The question of the public deficit does not even receive a passing mention in Le Pen’s electoral programme.

Her only commitment is to put the French public finances “in order” by eliminating certain expenses, “notably those linked to immigration and the European Union”.

Other savings promised by Le Pen would be made by fighting tax and social fraud but also allowing “the direct financing of the Treasury by the Bank of France”, which would mean leaving the euro.

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