Although the European Commission anticipates a French public deficit below 3% for the coming years, it highlights other risks that could render the French budget for 2018 “non-compliant” with European rules.
A potentially embarrassing warning for the credibility of the French government’s European ambitions.
The first provisional budget of the five-year term “adopted by the French deputies” has been criticized by the Commission. Indeed, the European executive on Wednesday published its annual analysis of the national budget projects of member states, as part of the preparatory phase of the European Semester.
This warning is “rather embarrassing” for the French president who advocated during his campaign “reducing deficits to lower a debt that weighs on growth.”
Yet, according to the Commission, France “should close 2017 with a public deficit at 2.9% of GDP.” The forecasts from Brussels are identical for 2018. Thus, France would comply with the “3% rule” on which the “media debate has focused since 2009,” the year when the country entered the Brussels procedure known as “excessive deficit procedure (EDP).”
By posting a deficit of less than 3% for two consecutive years, Paris has a real hope of exiting it in 2018, although the “margin of safety [is] slim,” according to Pierre Moscovici, European Commissioner for Economic Affairs.
In the rest of Europe, the former Economy Minister of François Hollande also recalls, “no one mentions the 3%.” “And for good reason,” add Les Échos: “the average public deficits are at 1.1% in the eurozone.” France “remains, for now, with Spain, the only country in the eurozone classified by Brussels in EDP.”
Why is the Commission warning against “a risk of non-compliance” of the French budgetary situation with European rules? According to the institution’s economists, there is “a significant gap” between the budget presented to them by Paris and “the required adjustment trajectory” to reduce its public deficit and debt.
In other words, the Commission believes that France “has not undertaken the reforms that would deal a severe blow to what are called structural deficits,” that is, “the part of the deficit that does not fluctuate with the economic cycle.” This is a figure that constitutes “the Brussels gauge of the budgetary effort made by each capital.”
In other terms, these are deficits related to the functioning of the state and not to the economic cycle. Therefore, to reduce them, “public spending cuts or tax increases” are necessary.
To satisfy the European rules in this area, France must at least propose a “structural effort” of 0.1 percentage point of GDP.
The 2018 finance bill indeed provides for this effort “except that the European Commission has a different interpretation: it foresees a risk of budgetary relaxation.” For it, the French effort would indeed be “negative” and would equal “-0.4%.”
