1st November 2014

French and Italian deficit provisionally cleared

As one of its final acts, the Barroso II Commission provisionally accepted all 18 eurozone budgets for 2015. Serious concerns have been raised earlier about the French and Italian budgets, but also the Maltese, Slovenian and Austrian ones. Both France and Italy originally prepared budgets which breach the Stability and Growth Pact rules. If the breach had been found serious, the budget plans could have been stopped by the Commission and fine proceedings would have been initiated. Since France is already late in getting its budget under 3% of GDP deficit, it would almost certainly have to face a huge fine. But both countries made some last minute changes. These led Commission Vice-President Katainen to say that Commission had not found sufficient reasons to reject the budgets in the first step. Italy plans a budget of less than 3% of GDP deficit, but has a huge debt. France reduced its structural deficit plan, but is still far beyond the 3% limit. All the budgets will now be placed under detailed analysis by the Commission, which will last for the next month. Only afterwards will the budgets be definitively accepted or rejected. The Commission´s gesture is seen as a signal of good faith, since both France and Italy plan painful reforms to boost growth in the following years. These reform plans conflict with the strict budgetary rules and therefore it is understood, that the countries cannot do both at the same time. With last week´s provisional approval, the Commission granted France and Italy some additional time. But unrest is growing in the eurozone. Small countries suffered heavily due to their efforts to get the budgets in line with the SGP and did not ask for additional time. They now ask for equal treatment. But since the matter is extremely sensitive and comes in the time of fragile market trust, a compromise was widely expected.

For more, click here, here and here.

Members of the American Chamber of Commerce in the Czech Republic