15 April 2015

Financial Times: France risks Brussels ire with reduced structural budget cuts

Michel Sapin disclosed new pledges to narrow the structural deficit by 0.5 per cent of Gross Domestic Product in 2016 and 2017. This is less than the 0.8 per cent and 0.9 per cent efforts requested by the Commission.

The decision was helped by Paris’s growing confidence in bringing back its nominal deficit below the bloc’s requirement of 3 per cent of GDP by 2017, the new deadline set by Brussels last month. In exchanges with the commission, the French government has indicated it would target a deficit of 3.3 per cent of GDP next year and 2.7 per cent in 2017. It is forecasting 3.8 per cent this year.

“The EU recommendations would have made growth plummet,” Sapin said. “We believe there is another way to meet the same goals.”

Last month, not long after Brussels imposed new goals for France in return for more time to meet the bloc’s budget rules, Paris announced that its deficit had compressed faster than expected in 2014, to 4 per cent of gross domestic product, from 4.3 per cent the previous year. 

Manuel Valls, prime minister, has also indicated that growth would accelerate this year, potentially reaching 1.5 per cent, above the government’s official 1 per cent target.

French officials said the positive developments have made the commission’s requirements obsolete just weeks after being issued.

They have tried to reassure Brussels that they would meet the deficit goals ever since Mr Valls told the commission in a private meeting in Brussels last month that its structural demands would damage French growth and would not be followed. 

They are getting ready for tough discussions in the next few weeks, during which they will also outline planned labour market reforms.

But the mood may have become more lenient in Brussels. EU officials said March’s announcement by Paris of better-than-expected growth figures has damped demands within the commission for completing all the structural reforms originally required. 

Even hardliners like Valdis Dombrovskis, the Latvian commissioner in charge of eurozone policy, who last month pushed for fines against France for its failure to meet deficit targets, have pulled back on their criticisms, one official involved in the talks said.

Under the EU’s budget rules, the European Commission only considers a country’s economic reform agenda if it is on track to miss the 3 per cent budget deficit target. With France’s bolstered growth prospects lowering its deficit, it is now on track to outperform the new requirements imposed by Brussels.

© Financial Times