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Wednesday, 25 February 2015

EU gives France until 2017 to fix budget deficit

The EU on Wednesday gave France until 2017 to bring its budget deficit back into line with Brussels’ rules, meaning the eurozone's second biggest economy will avoid a fine for now.

The European Commission said, however, that France must present it with a reform plan on how it intends to get its finances back in order by April.

"Today we have decided to propose a new recommendation to France as to how to address its excessive deficit, and set a new deadline for it to be below 3.0 percent, this being by 2017," the bloc's euro commissioner, Valdis Dombrovskis, told a hastily-arranged press conference.

But, he said, “It’s clear that France needs to step up its efforts.”

Theoretically, eurozone countries face penalties if their deficit stays above 3.0 percent of economic output but any fine against one of the EU's founding members such as France would have been unprecedented.

In November, the EU gave France an extra three months to come up with a plan to cut its deficit back below the 3.0 percent of GDP limit.

France, the eurozone's biggest economy after Germany, had already won two previous extensions, firstly under the presidency of Nicolas Sarkozy and then under current President François Hollande.

Upon learning the news, French Prime Minister Manuel Valls said France’s intention is “indeed to be under the 3 percent” threshold in 2017, noting that thanks to new reforms, France “is in the midst of changing”.

Valls added that “my objective is to reform the country, not because European authorities are obliging us to”.

New reform programme

The EU commissioners rejected suggestions that Brussels was going easy on France because of the size of its economy, in comparison to its harsh treatment of debt-stricken Greece and other smaller countries.

In return for the extension, France must now submit a new economic reform programme to Brussels in April to show it can hit the deficit target over the longer time frame, EU Economic Affairs Commissioner Pierre Moscovici said.

In practice, that means French budget plans will have to be adjusted to produce savings equal to 0.5 percent of GDP to set against the deficit, compared with the current 0.3 percent.

"France has already announced reforms in the past few days. We expect France to present a more complete national reform programme in April which we will consider in May," added Moscovici, a former French finance minister.

Penalties remain on the table if France still fails the EU's tests, Moscovici added.
"Sanctions are always an option," he said. "But sanctions are always a failure -- a failure for those imposing them and those receiving them."

The new French deadline is now in politically sensitive territory during France's next presidential election in 2017.

Finance Minister Michel Sapin reaffirmed France's commitment to meet the 3.0 percent target by 2017, saying in a statement that "it is exactly the goal the government fixed in its 2015 budget and its medium-term finances plan."

Feeling the pressure from the EU, Paris in December revised its deficit forecast for 2015 to 4.1 percent from 4.3 percent, still way above the EU's 3.0 percent ceiling.

It also revised its estimates for 2016 to 3.6 percent and for 2017 to 2.6 percent.
(FRANCE 24 with AP, AFP)

 france24.com
25/2/15

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