Brussels, 26/02/2015 (Agence Europe) - The decision taken by the European Commission on Wednesday 25 February to recommend that the Ecofin Council give France a conditional grace period of two years (2017) to bring its public deficit below the 3% of GDP mark has been greeted positively, but not especially enthusiastically, by the French authorities (see EUROPE 11262).
The new ground broken by the European institution in the framework of the proceedings against France over its excessive deficit and macro-economic imbalances has been punctuated by tight deadlines from this spring onwards, which the French government will have to meet with flying colours if it hopes to avoid facing the threat of financial penalties as provided for by the revised Stability and Growth Pact.
The French case is unique in itself. France is a country of the eurozone which: - has been under excessive deficit proceedings since 2009 (deficit of 4.1% of GDP in 2015, which is likely to remain the same unless changes are made, according to the Commission's winter economic forecasts: see EUROPE 11247) and has been subject to a procedure of this kind for 11 years, since 1997 (source: Commission's presentation on the EMU at the February summit); - is one of a group of countries (France, Croatia, Italy, Bulgaria and Portugal) for which the excessive imbalances observed are subject to specific monitoring and require effective actions to be taken (stage 5 of 6). Unlike Portugal, the second-largest economy of the eurozone has not been forced into a financial bailout plan.
On the excessive deficit, the definitive securing of an extra two years is scarcely in doubt, even though this is the third grace period the country has been given, following those it received in 2009 and 2013 (two years). The French president, François Hollande, is reported even to have asked for three years, apparently in order to avoid interference with the presidential elections of 2017. However, such a long grace period has never been granted in the history of the Pact and the Commission's economic forecasts do not provide for a period longer than two years. On the macro-economic imbalances, France is once again just a step away from seeing formal proceedings opened which could lead to sanctions (financial penalty for countries of the eurozone, freezing of structural funds for the other countries). All that is now required to take this final step is an in-depth analysis of the situation.
The Eurogroup and the Ecofin Council will discuss the case of France in early March. They are expected to adopt the Commission's recommendation to give Paris more extra time to bring its deficit below 3% of GDP, whilst insisting that additional reforms be presented.
The ball, therefore, is now in France's court. In the national stability and reform programmes it must notify to the Commission by the end of April, the French government will specify how it plans to bridge the gap between the structural budgetary effort (not including conjunctural effects) required for 2015 (0.5% of GDP) and the effort observed (0.3%) to date. It will act on the basis of the reform plan recently adopted and may draw inspiration from a list of recommended actions the Commission will submit in the near future. The Commissioner for Economic and Monetary Affairs, Pierre Moscovici, has put the effort at “3 to 4 billion euros”.
When it presents its country-specific socio-economic policy recommendations in May, the Commission may already be in a position to give its assessment on the scale of the structural reforms recommended and initiated in France. But from June, it may formally recommend that the Council note that the actions recommended for 2015 have not yet had any effect. This change of course could lead to the threat of financial sanctions for Paris, a scenario never before seen in the eurozone. (Mathieu Bion)