EU gives France an ‘F’ grade for its spending plans – POLITICO

BRUSSELS/PARIS ― The European Commission has informed the French government that it must urgently adjust its spending plans for next year to bring them into line with EU rules on debt and deficit when they will return after a four-year suspension.

Paris is one of four governments that have received warnings about their budget plans from the bloc’s executive, as part of its role in monitoring member countries’ public spending. The rules, aimed at preventing financial market instability and the accumulation of public debt, will take effect again on January 1 after being scrapped to allow more investment during and after the COVID pandemic.

“France’s draft budget plan risks not complying” with the bloc’s rules, Commission Vice-President Valdis Dombrovskis told reporters in Strasbourg, highlighting rising public spending and insufficient cuts in energy support.

Belgium, Finland and Croatia fall into the same category, the Commission said in its press release on Wednesday. Ignoring the warnings could trigger a so-called excess deficit procedure, a lengthy process that includes specific requests to rein in spending and potentially ends with financial sanctions.

These bulletins, and the reinstatement of Stability and Growth Pact rules in general, come at a critical time, when European economic growth remains weak and high interest rates make borrowing more expensive. Russia’s war in Ukraine and growing tensions in the Middle East are adding uncertainty for governments and central banks in Europe and elsewhere.

“Whatever it takes”

The pressure on France is drawing attention away from Italy, long considered Europe’s bad boy when it comes to public spending. Rome is not completely out of the woods: its budget is “not fully compliant” with the rules, the Commission said. The same goes for Austria, Germany, Luxembourg, Latvia, Malta, the Netherlands, Portugal and Slovakia.

French Finance Minister Bruno Le Maire has repeatedly stressed that the 2024 budget will mark the end of the “whatever it takes” era of economic spending, pledging to gradually phase out budget measures. emergency linked to the pandemic and the energy crisis.

As the Commission announced its assessments, a French Economy Ministry official was quick to point out that Paris was unlikely to be sanctioned by an excessive deficit procedure and would not need to modify its finance law.

“We will not have to take any adjustment measures on this evolution of net primary expenditure,” said the official, on condition of anonymity, stressing that the gap between France’s expenditure and the Brussels recommendation was ” very weak”.

The official insisted that, unlike other EU countries, France has not received a written request from Brussels.

Paris forecasts a deficit next year of 4.4 percent of GDP – exceeding the EU’s 3 percent threshold – and spending cuts of 5 billion euros. The French budget is still under discussion in the country’s parliament and is expected to be approved by Christmas.

The Commission also expressed fears that France’s debt-to-GDP ratio could reach 110% of GDP next year. The EU limit is 60 percent.

“Because it’s France”

Brussels is under some pressure to show that it is serious about enforcing European rules on deficit and debt, even if governments can agree on their revision by the end of the year – an agreement that France is trying to negotiate. The EU wants to make them more flexible and better suited to each country’s circumstances, but Germany leads a group of governments demanding that some strict debt and deficit reduction targets be maintained.

France’s violation of deficit criteria means the Commission could theoretically launch an “excessive deficit procedure” (EDP) from next spring – a wake-up call that would force violating countries to adjust their spending.

The French case is particularly sensitive because Paris has already benefited from special treatment. In 2016, the last President of the Commission, Jean-Claude Juncker, justified his decision to give Paris leeway on its budgetary errors simply “because it’s France”.

This article has been updated with quotes from Strasbourg and Paris.