French right plans to deepen the deficit in 2017

Michel Sapin said on Tuesday that Hollande's presidency had corrected the French budget. [PS/flickr]

During François Hollande’s five years as president, France has tightened its belt and brought its budget deficit down to within EU limits, Michel Sapin said on Tuesday (20 September). But the opposition appears ready to abandon austerity. EURACTIV France reports.

At the presentation of France’s broad macroeconomic and budgetary plans for 2017 in Paris on Tuesday, Sapin, the minister for the economy and finance, promised that the public deficit would be brought down to 2.7% of GDP next year, from 3.3% this year. This would make 2017 the first year in a decade that the French budget would fall within the EU’s 3% deficit limit.

As elections near, French politicians renew assaults on EU budget rules

Nobody yet knows the winner of France’s presidential election next year, but the smart money is on one loser: the 3% cap on government deficits enshrined in eurozone rules.

“We have placed the public deficit on a sustainable path and we will bring it below 3% before the end of the presidential mandate,” the minister said. “Our decision at the start of the mandate was clear. We made balancing the public accounts a priority, but we did so with constant concern for social justice,” he added.

The Maastricht Treaty

The EU rules limiting public deficits to 3% of GDP, established by the Maastricht Treaty in 1992, have been flouted by Paris for years. Nicolas Sarkozy negotiated an extra two years to balance his books, which he failed to do. And on his arrival in the presidential palace, François Hollande negotiated a similar deal.

But the leniency shown to France has upset the smaller EU member states, which have not received such favourable treatment.

France needs austerity, Juncker tells mayors

Jean-Claude Juncker spoke to French mayors on Tuesday (31 May) to insist on the need for structural reforms and a rebalancing of the country’s public finances. EURACTIV France reports.

Ahead of the 2017 presidential elections, the Socialist government is keen to present its efforts at balancing the books as a success, offsetting the budgetary slippage of Sarkozy’s administration (2007-2012).

“Our budgetary rigour over the last four years has allowed us to regain the esteem of our European partners and make our voice heard,” said Sapin. For the minister, France’s ability to participate in the debate on the European budgetary rules depended on its efforts to build credibility.

“We have to closely evaluate the rules of the Stability and Growth Pact, and if we want to have a voice in this debate, France has to be faultless,” Sapin said. “And it will be a disaster if all our hard work was erased by a few months or irresponsibility,” he warned.

The return of big spending?

The right-wing Republican party’s candidates for the 2017 presidential elections all promise to deliver a budget deficit below 3%.

But in recent months, many of these habitual defenders of austerity have made competing statements in favour of relaxing the deficit target.

The Republican candidates blame this change of heart on the Socialist government’s “unrealistic” and “unattainable” budget predictions.

François Fillon, Sarkozy’s former prime minister, said the 2017 deficit would be closer to 4.5%. And Sarkozy himself predicted a deficit of around 4%. Alain Juppé, the current mayor of Bordeaux and the former prime minister under Jacques Chirac, made a more moderate prediction that France would bring its deficit below 3% of GDP in 2018.

Moscovici wants to make EU deficit rules more flexible

Pierre Moscovici, has said he hopes that all the EU’s excessive deficit procedures will be over by 2017. A change in the European deficit rules may be on the horizon. EURACTIV France reports.

But the issue is still highly sensitive in Brussels, where the EU executive has already granted Paris two extensions to its deficit deadline.

The European Commission will perform an in-depth analysis of France’s 2017 budget this autumn and assess the credibility of the 3% deficit target.

For now, the European Commissioner for Economic and Financial Affairs, Pierre Moscovici, has hailed the predicted return of the budget to the limits set out in the treaties as “good news for France and for the eurozone”. And he insisted on the importance of respecting the EU’s rules.

The excessive deficit procedure is layed 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.

  • 28 September: Presentation of 2017 finance bill to the Council of Ministers

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