Bruno Le Maire, the French Minister of Finance, told Pierre Moscovici, the European Commissioner for Economic and Financial Affairs, and Valdis Dombrovskis, the Commissioner for the Euro and Social Dialogue at a meeting in Brussels on Wednesday 19 December that France's structural adjustment in 2019 would be 0% of GDP.
For Mr Le Maire, it was a question of defending the measures announced on Monday 10 December by Emmanuel Macron, the French President, in an attempt to respond to the "yellow vest" crisis (see EUROPE 12157).
"I was able to reiterate that the fundamentals of our economic policy have not changed," he said at the end of the meeting. While the French Minister reaffirmed France's commitment to pursue structural reforms, he nevertheless informed his interlocutors of the impact of the measures announced on the structural deficit for next year, which the French government estimates at 0.3% of GDP.
Indeed, the draft budget plan submitted by France to the Commission in October envisaged a reduction in the structural deficit in 2019 of 0.3% of GDP (see EUROPE 12117). Before Mr Macron's announcements, the Commission estimated that the reduction in the structural deficit in 2019 would be 0.2% of GDP after a zero adjustment in 2018 (see EUROPE 12161).
However, in view of the rules of the preventive arm of the Stability and Growth Pact, that France integrated this year, Paris must reduce its structural deficit by 0.6% of GDP per year, though the Commission accepts variations of 0.25% of GDP per year for two years (potentially cumulative over one year).
If the measures in question do indeed have a negative impact on the structural deficit, the Commission may recommend triggering a procedure for significant deviation in view of the medium-term budgetary objectives. However, there is no question of activating this lever today, and the Commission's spring economic forecasts as part of the ’European Semester' budget process could give a first indication for France’s budget path.
From the French perspective, there was a sense of "understanding" on the part of the Commission with regard to the country’s situation. This understanding does not mean, however, that the lack of structural adjustment in 2019 will be accepted by the institution.
10 billion in costs vs 4 billion in savings. Not surprisingly, the Mr Le Maire reminded the Commissioners that Paris was now expecting a nominal deficit of 3.2% of GDP for next year.
He also gave them more details about the costs of the measures announced by Mr Macron and their partial compensation. The cost of these measures is estimated at €10 billion, which the French government intends to partially offset by €4 billion. These €4 billion would be made up of €500 million as part of a new tax on digital services, which Paris plans to apply from January 2019 (see EUROPE 12154), and €1.5 billion in budgetary savings still to be defined as well as €2 billion in corporate taxes. (Original version in French by Lucas Tripoteau)