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EURO

EU slaps tough budget targets on France

UPDATED: The EU set France tough new targets on Friday to ensure it gets its budget deficit back within Brussels rules, after giving Paris an extra two years until 2017 to comply.

EU slaps tough budget targets on France
Photo: Sebastian Fuss/Flickr

The European Commission is keeping up the pressure two days after it extended the deadline for France, the eurozone's second biggest economy after Germany, to get back below the EU's ceiling of 3.0 percent of economic output.

Brussels said France must use the extra breathing room to reach a deficit of 4.0 percent of annual economic output in 2015, 3.4 percent in 2016 and 2.8 percent in 2017.

The first two years are tougher than France's own targets of 4.1 percent in 2015 and 3.6 percent in 2016.

French Finance Minister Michel Sapin, speaking during a visit to Slovenia, said the country would be able to meet what he described as "demanding" but realistic targets.

The EU had disappointed fiscal hardliners when it said Wednesday that France would escape possible fines for now and get two more years to get its house in order, while Italy and Belgium were let off the hook completely.

But to reach the EU's new benchmarks France will have to find additional savings in an economy growing very slowly, putting the government on the spot as it tries to boost growth through increased public spending.

For 2015, the Commission, the EU's executive arm, estimated the savings required at 0.5 percent of GDP, up from the current 0.3 percent — that means additional savings worth at least 4.0 billion euros ($4.5 billion).

But for 2016, Paris must find an even tougher 0.8 percent and then 0.9 percent in 2017, the Commission said in a series of recommendations following Wednesday's deadline extension.

The EU looks at the deficit — the difference between spending and revenue — in central and local government spending plus social welfare systems.

"France should step up efforts to identify savings opportunities across all sub-sectors of general government, including at social security and local government level and use all windfall gains for deficit reduction," it said in a statement.

France, like many of the European Union's 28 member states, has been in breach of the deficit limit for years and has won two previous deadline extensions.

But new rules imposed by Brussels to tame the eurozone debt crisis since its height in 2010-2012 has given the Commission much greater oversight of national budgets.

At the same time, Germany, the bloc's paymaster and determined austerity advocate, insists the budget rules must be met if the EU is to achieve sustainable growth.

Berlin has been reluctant to cede any ground to France and Italy over their demands that austerity be eased at least slightly to give them more leeway to boost growth.

 

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EUROPEAN UNION

How Britain tried to turn former French president Chirac against the euro

British diplomats tried to establish a "very private link" with former French president Jacques Chirac with the "unavowed aim" of exposing him to the risks of a European currency union, declassified documents revealed Thursday.

How Britain tried to turn former French president Chirac against the euro
French President Jacques Chirac (L) welcomes British Prime Minister John Major at the Elysee Palace 29 July 1995 in Paris. Photo: AFP
The government files from 1995 document Britain's plan to influence the French president's decision on whether to proceed with the Economic and Monetary Union (EMU), the group of policies that led to the formation of the euro.
   
“Chirac is alive to the risks of ploughing ahead with the EMU without thinking through the implications,” then British ambassador in Paris Christopher Mallaby wrote to the prime minister at the time, John Major, in a cable outlining his plan to “move the debate in our direction”.
   
He suggested “establishing a very private link” between Downing Street and Chirac's Elysee palace. 
   
“The pretext could be private discussions” about currency union, he wrote.
 
Photo: AFP
 
“The unavowed aim would be to ensure that Chirac was exposed to the risks of an early move to EMU, including the divisive political effect within the EU,” he added.
   
Britain never joined the currency union, having infamously been forced to withdraw the pound from a precursor on “Black Wednesday” in 1992 when it could 
not keep sterling above an agreed level, and was keen to stall the move towards a full union.
   
Mallaby targeted Chirac as a potential ally, saying his “thinking is unformed and influenceable.”
   
The documents also revealed Chirac's scepticism about European integration.
   
“He said bluntly that Europe was no longer very popular,” a foreign office cable quoted him as saying at a 1995 heads of government meeting.
   
The president added that the “EU seemed to be cut off from the real problems affecting the ordinary citizen… and people saw it as a mammoth bureaucracy poking its nose in where it was not needed,” added the memo.
   
Prime Minister Major replied that “he had been waiting five years to hear someone else say things like this!”, according to the cables.
   
Major is now a fierce opponent of Brexit, having been fatally damaged in office by internal divisions over his decision to sign Britain up to the Maastricht Treaty in 1992.
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