Paris and Brussels take first steps to coordinate budget

French economy set to return to growth in 2014. [shutterstock]

France has tried to find a common approach with the European Commission on budgetary issues at a meeting with several EU and national officials earlier this week in Paris, in preparation for next year's budget.

The exercise is new and therefore still relatively discreet. On Monday (14 October), a number of parliamentary committees in the French National Assembly organised an exchange of views on France's draft 2014 budget, in presence of Thierry Repentin, minister in charge of European affairs, EU commissioner Michel Barnier, and a few French members of the European Parliament.

The aim was to coordinate national and European budgetary policies, a difficult task.

Barnier expressed his disappointment that France's budget minister, Bernard Cazeneuve, was not present at the meeting. Moreover, only three parliamentarians from the right-wing opposition UMP attended.

Some of them had good reasons: the first part of the 2014 budget law had to be adopted on Tuesday (15 October) and the committee members were working on the amendments.

The 2014 draft law on finances is seen as an austerity budget by the socialist government while the European Commission deems it insufficiently tough.

Tight schedule

The diverging schedules for national budgetary approval procedures is also a tricky issue in the EU's attempt to coordinate fiscal policy in the eurozone.

The “two-pack”, adopted in 2012, requires eurozone countries to submit their draft budget to the European Commission before mid-October. Those that do not respect the rules can be placed under under "enhanced surveillance", a new procedure decided as part of emergency measures to tackle the sovereign debt crisis.

In theory, and for the first time this year, all member states must submit their draft budgets by 15 October. France has already done so, while Ireland and Italy have yet to submit theirs. The draft budget figures are then assessed by Eurostat, which submits them to the Commission in late October, Barnier explained.

“But usually, it’s exactly at that time that we adopt the budget," said Socialist MP Danielle Auroi. "So if the Commission’s forecasts are totally different, what can we do?”, she asked.

This year, questions related to the reliability of statistical forecasts will not be discussed for France. It’s one of the few agreements between Brussels and Paris.

"We welcomed the fact that the forecasts were based on plausible figures for the first time in years," Barnier said. But the EU commissioner also criticised the state of France's public finances, saying Paris had “crossed a red line” on compulsory levies ("prélèvements obligatoires"), which increased by 4% between 2010 and 2013 to reach 46% of GDP.

Michel Barnier is also concerned about the rate of public expenditure, which reached 57% of GDP, well above the euro area average of 49%. In Germany, the weight of state in the economy is the lowest in the euro area, at 45% of GDP.

On the construction of the budget and debt management, the Commission and France are in complete disagreement. Barnier promised that the Commission's observations would not focus primarily on the nominal deficit, which could exceed 4% of GDP next year.

The Commission said it would also pay more attention to  France's "structural" deficit as weak economic growth penalises the recovery of public finances, further burdening the country's growth potential.

According to the commitments of the "six-pack and "two-pack", countries must have less than 0.5% of GDP structural deficit. But the expression “structural deficit” does not have a common definition in all EU countries.

"What is a structural deficit? There is a problem of definition! Eurostat must give a precise definition”, insisted Pervenche Beres, a Socialist MEP.

She received the support of her colleague Chantal Guittet who said that he expression “potential growth” was equivalent to astrology. “We must find an agreement on this, otherwise the exchange of views makes no sense”, MP Christophe Caresche added.

The structural deficit is commonly understood as the part of the deficit that is not affected by economic cycles, which is difficult to evaluate. All expenses and income are linked to the economic activity to which they relate. Some, however, are more exposed than others to the economic downturn.

The European Commission has set up a yearly cycle of economic policy coordination called the European Semester.

Each year it undertakes a detailed analysis of EU member states' programmes of economic and structural reforms and provides them with recommendations for the next 12-18 months.

The European semester starts when the Commission adopts its Annual Growth Survey, usually towards the end of the year, which sets out EU priorities for the coming year to boost growth and job creation.

  • Mid-November : European Commission to assess draft finance law

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