1st December 2014

France is given three extra months on budget evaluation

On 28 November, the European Commission announced that it will give a final assessment of the French, Italian and Belgian budgets only in March 2015. All eurozone countries are obliged to present their budget plans to the Commission, which then evaluates them in terms of the Stability and Growth Pact (SGP), reinforced by the provisions of the six-pack and two-pack. If a country´s budget is not in line with the SGP, the Commission must take action. In extreme cases, the Council can impose financial sanctions.

French budget has been in breach of the SGP for some years now and its deficit should have been brought under 3% of GDP by 2013. In 2013, however, France got a two-year extension. But this year France has submitted budget plans which expect the deficit to get under the 3% of GDP level only in 2017. This angered many eurozone countries and some call for sanctions against France. These could reach some €4 billion. They point out that several countries faced problems, but got their budgets in line with the SGP even though it was tough and painful.

In October, the Commission announced that the French budget does not contain particularly severe violations of the SGP, allowing it to continue in the assessment procedure. Now, Vice-President Dombrovskis and Commissioner Moscovici announced that the final assessment, due in November normally, will be only carried out for France and also for Italy and Belgium in March 2015. The argument is that France, and the other two also, promised some structural reforms. The Commission chose, therefore, the so-called wait and see tactics. Despite French reforms pledges, the Commission´s move is clearly a political gesture towards the second largest economy of the eurozone – a move that many criticise (among them Commissioner Oettinger). It is, however, one of few possible gestures. In fact, the Commission´s hands are quite tied by the two-pack and if there are clear indices of SGP breach, it does not have a choice and must take action. A delay was therefore the only feasible option. The only other way seems to be the start of the sanctioning procedure which would finish with a symbolic sanction of 0% of GDP agreed by the European Council. In diplomatic terms, though, this would be a far stronger measure. Nevertheless, it cannot be ruled out at this stage, as well as real financial sanctions if in March 2015 the Commission is not satisfied with France´s performance in terms of reforms.

Italy and Belgium do not have problems with budget deficits, but with debt levels. Other countries´ budgets are in line of the SGP, broadly in line with the SGP or contain some risks of breach of SGP in the future.

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Members of the American Chamber of Commerce in the Czech Republic