13th March 2015

Eurogroup extends deadline for French fiscal compliance for the third time

The Eurogroup, informal formation of eurozone finance ministers, approved Commission´s proposal and gave France two more years to get its fiscal deficit under 3% of GDP, as required by the legally binding coercive arm of the Stability and Growth Pact. France surpassed the deficit threshold in 2009, in the midst of the economic crisis. The deadline for compliance had been already twice extended and should have been 2015. However, late last year, France informed the Eurogroup that it would not be able to propose a compliant budget for this year and aims for 2017. The reason for this ought to be weak economic performance of France, and of the eurozone as a whole, reform effort requiring additional sources and more incentives for growth, i.e. less cuts as a way to stimulate the economy. The Commission announced that SGP rules would be applied with a certain degree of flexibility. As a result of the Greek crisis, the rules were strengthened and provide very little room for maneuver, in case of stated non-compliance, sanctions follow automatically. The Commission therefore sought very creative wording to avoid stating French non-compliance. The latest draft, presented to the Eurogroup which later endorsed it, states that France made some efforts in the following words – “The available evidence does not allow to conclude on no effective action.” Since France made efforts and promised to undertake further reforms, some of them very controversial in France, the third extension of the deadline is justified, according to the Commission and to the Eurogroup. As a sign of goodwill, France will need to take additional measures of 0,2% of GDP until April 2015.

This yet another extension for France was not adopted without some controversy in the Eurogroup. It has been reported, that some smaller countries and also Spain protested against it, arguing that rules must be observed by all eurozone members. Germany, though, sided with France this time. The motion was therefore passed, but almost immediately Ireland asked for a similar flexible treatment. The Commission and the Eurogroup had been very cautious not to undermine the rules, but some states that had undergone difficult reforms to meet their respective deadlines might rightly have the impression that rules only apply to the smaller.

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Members of the American Chamber of Commerce in the Czech Republic