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.

They formally accepted assessments by the European Commission, the executive arm of the 28-member European Union, of the national budgets of member states including the reprieve for France.

“The Council found that extending the deadline for correcting the deficit was justified by the fiscal effort made by France since 2013, and by the current weak economic conditions and other factors,” the finance ministers said in a statement.

“France needs to step up its efforts both on fiscal and structural reforms… We are putting France under tight deadlines,” Valdis Dombrovskis, European Commissioner for the Euro and Social Dialogue, said after the ministerial talks.

In their new recommendation, EU finance ministers set deficit targets for France of 4.0% of GDP for 2015, 3.4% for 2016 and 2.8% for 2017.

In its decision announced in late February, the Commission gave France until 2017, but ordered it to report back on reforms in three months, after deeming that commitments pledged by Paris fell short.

France was accorded the extra two years to work down its public deficit – the difference between government spending and revenue – from 4.0% of annual gross domestic product in 2015 to 2.8% in 2017.

>> Read: EU gives France to 2017 to cut deficit, Italy, Belgium in clear

But the warning ignored demands by some European officials for France to be called to task as a repeat offender of the EU rule that national deficits not exceed 3.0% of economic output.

France has received several extensions in recent years to meet the rules, and a key official at the European Central Bank warned 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.

Some smaller countries have made their frustration known, with bailed-out Ireland on Tuesday asking for the same flexibility terms offered the much more powerful France.

“I supported the commission proposal, including the extension to France… but I used the opportunity to say that we needed the flexibility in the application of the rules as well,” Irish Finance Minister Michael Noonan said after the talks, according to the Irish Times.

>> Read: After France, Ireland wants EU budget flexibility

Germany, the EU economic powerhouse that pushes for balanced budgets, refrained from overtly criticising France and also approved the extension, but not without issuing a warning.

“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.

For his part, French finance minister Michel Sapin stressed that the new deadline extension was in conformity with the budget adjustment path that Paris had initially set for herself.

“So we now have a path set by France and a path set by the EU, which are converging. It is the same path that brings us together,” Sapin said after the meeting. “We now have a balanced budget policy”.