The EU on Wednesday reprimanded France for breaching the bloc’s budget rules under President Emmanuel Macron, 10 days before snap elections marked by lavish spending promises.
The news will be a blow to Macron as it is the first time France returns to the EU’s public spending sin bin since he came to power in 2017.
And it sets the stage for a potential clash between Paris and Brussels following elections on June 30 and July 7 — in which the far right and left, ahead in the polls, are pledging to spend billions more at a time when France will need to make cuts.
Alongside France, the European Commission said “the opening of a deficit-based excessive deficit procedure is warranted” for Belgium, Italy, Hungary, Malta, Poland and Slovakia.
The procedure kickstarts a process forcing a country to negotiate a plan with Brussels to get their debt or deficit levels back on track.
The seven countries had deficits — the shortfall between government revenue and spending — above three percent of gross domestic product, in violation of the bloc’s fiscal rules.
The centrist Macron plunged France into political turmoil by calling the snap vote after his party’s crushing defeat to the far right in EU elections earlier this month.
Finance Minister Bruno Le Maire has warned that France could be thrown into a debt crisis if the spending programmes of either the far right or a new left-wing alliance were adopted.
But senior EU officials refused to be publicly drawn on what the impact of France’s vote could be on its fiscal discipline.
A French finance ministry source said France’s deficit would return from last year’s 5.5 percent to below three percent by 2027 “provided a new government doesn’t go in a different direction”.
– ‘No return to austerity’ –
Brussels is reprimanding nations for the first time since the EU suspended the rules after the 2020 Covid pandemic and the energy crisis triggered by the Ukraine war, as states propped up businesses and households with public money.
The EU spent two years during the suspension overhauling the budget rules to make them more workable and give greater leeway for investment in critical areas like defence.
But two sacred goals remain: a state’s debt must not go higher than 60 percent of national output, with a public deficit of no more than three percent.
“Our economic and fiscal policies are now entering a new cycle,” said the EU’s economy commissioner, Paolo Gentiloni.
“This does not mean ‘back to normal’, because we are not living in normal times; and definitely not ‘back to austerity’, because this would be a terrible mistake.”
The commission will propose opening excessive deficit procedures for the seven countries in July to the EU’s finance ministers.
It also noted that Romania had “not taken effective action to correct” its excessive deficit, despite opening a procedure in 2020 based on 2019 data.
France aside, the EU countries with the highest deficit-to-GDP ratios last year are Italy (7.4 percent), Hungary (6.7 percent), Romania (6.6 percent) and Poland (5.1 percent).
Italian Economy Minister Giancarlo Giorgetti said Italy had expected the move and would continue on its path to “sustainable public finances, which is welcomed by the markets and EU institutions”.
– Stronger enforcement vow –
Countries failing to remedy the situation can in theory be hit with fines of 0.1 percent of gross domestic product (GDP) a year, until action is taken to address the violation.
In practice, though, the commission has never gone as far as levying fines — fearing it could trigger unintended political consequences and hurt a state’s economy.
EU officials have however stressed there would be stronger enforcement this time round.
The commission said states must send their multi-annual spending plans by September 20 for scrutiny and it will then publish its recommendations in November.
The new rules stipulate that countries with an excessive deficit must reduce it by 0.5 points each year, which would require a massive undertaking.
But the rules also now give greater flexibility for investment in critical areas like defence and the green and digital transition.
raz/ec/rl
