France wins approval for two-year deficit reprieve

European finance ministers on Tuesday approved a controversial two-year extension for France to get its finances in order, despite accusations that bigger member states are given favourable treatment by Brussels.

France wins approval for two-year deficit reprieve
Did France get treated more leniently by Brussels than Greece? Photo: Loic Venance/AFP

European finance ministers on Tuesday approved a controversial two-year extension for France to get its deficit within the bloc's limits, despite accusations that bigger member states are treated more leniently than smaller ones.

They formally accepted assessments by the European Commission, the executive arm of the 28-member European Union, of the national budgets of member states including the reprieve for France.

"France needs to step up its efforts both on fiscal and structural reforms… We are putting France under tight deadlines," European Commission vice president for the euro Valdis Dombrovskis said after the ministerial talks.

In its decision announced in late February, the commission gave France until 2017 but ordered it to report back on reforms in three months, after deeming that commitments pledged by Paris fell short.

France was accorded the extra two years to work down its public deficit  — the difference between government spending and revenue — from 4.0 percent of annual gross domestic product in 2015 to 2.8 percent in 2017.

But the warning ignored demands by some European officials for France to be called to task as a repeat offender of the EU rule that national deficits not exceed 3.0 percent of economic output.

France has received several extensions in recent years to meet the rules, and a key official at the European Central Bank warned that the rules were being undermined with major economies treated more leniently than smaller ones.

"It's always extremely important in Europe to avoid a situation — or even to avoid the perception — that large countries are treated in a more benevolent way, in a more generous way, in a more flexible way than smaller countries," ECB executive board member Benoit Coeure told the Financial Times.

Some smaller countries have made their frustration known, with bailed-out Ireland on Tuesday asking for the same flexibility terms offered the much more powerful France.

"I supported the commission proposal, including the extension to France… but I used the opportunity to say that we needed the flexibility in the application of the rules as well," Irish Finance Minister Michael Noonan said after the talks, according to the Irish Times.

Germany, the EU economic powerhouse that pushes for balanced budgets, refrained from overtly criticising France and also approved the extension, but not without issuing a warning.

"If the commission is too flexible on the growth and stability pact (budget rules) for political reasons — it has to be aware there will be consequences," said Wolfgang Schaeuble, Germany's influential finance minister.

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Paris, Berlin agree on future eurozone budget: French ministry source

France and Germany have agreed on the broad outlines of a proposed eurozone budget which they will present to EU finance ministers in Brussels on Monday, a French finance ministry source said.

Paris, Berlin agree on future eurozone budget: French ministry source
French Economy and Finance Minister Bruno Le Maire (R) and German Finance Minister and Vice-Chancellor Olaf Scholz. File photo: AFP

The common single-currency budget was one of French President Emmanuel Macron's key ideas for protecting the euro, but it caused differences between France and Germany, the region's two largest economies.

French Finance Minister Bruno Le Maire and Germany's minister, Olaf Scholz, will “jointly present a proposition on Monday… about the layout for a budget for the eurozone,” the ministry source told AFP.

“It's a major step forward,” the source said. “We will look forward to sharing with other members.”

The source said the amount of the budget has not been established as the proposal was to first set out the “architecture and main principles” of the budget.

According to a copy of the French-German proposal, the budget would be part of the EU budget structure and governed by the 19 euro members.

Macron will travel to Berlin at the weekend to meet with German Chancellor Angela Merkel where the two leaders will bolster their alliance as champions of a united Europe.

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