EU gives France until 2017 to fix deficit

EU economic and financial affairs commissioner Pierre Moscovici gives a press conference on Feb 25, 2015 at the EU Parliament in Brussels. The EU on Feb 25 gave France a further two years until 2017 to bring its budget deficit back into line with Bru
EU economic and financial affairs commissioner Pierre Moscovici gives a press conference on Feb 25, 2015 at the EU Parliament in Brussels. The EU on Feb 25 gave France a further two years until 2017 to bring its budget deficit back into line with Brussels rules, meaning the euro zone's second-biggest economy avoids a fine for now. -- PHOTO: AFP

BRUSSELS (AFP) - The EU on Tuesday gave France two more years until 2017 to bring its budget deficit back into line with Brussels rules, meaning the euro zone's second-biggest economy avoids an embarrassing fine for now.

Paris must, however, present a reform plan to Brussels by April to show how it intends to get its finances back in order, added the European Commission, the executive body of the 28-nation EU.

Italy and Belgium will face no action because they have made enough progress toward bringing their deficits back into line with European Union spending regulations that were tightened in the wake of the eurozone debt crisis, the EU said.

"Today we have decided to propose a new recommendation to France as to how to address its excessive deficit, and set a new deadline for it to be below 3 per cent, this being by 2017," the bloc's euro commissioner Valdis Dombrovskis told a hastily-arranged press conference.

Theoretically, euro zone countries face penalties if their deficit stays above 3 per cent of economic output but any fine against one of the EU's founding members such as France would have been unprecedented.

In November, the EU gave France, Italy and Belgium an extra three months to come up with plans to cut their deficits back below the 3 per cent of gross domestic product (GDP) limit.

France, the euro zone's biggest economy after Germany, had already won two previous extensions, firstly under the presidency of Nicolas Sarkozy and then under current President Francois Hollande.

REFORMS NEEDED

The EU commissioners rejected suggestions that Brussels was going easy on France because of the size of its economy, in comparison to its harsh treatment of debt-stricken Greece and other smaller countries.

In return for the extension, France must now submit a new economic reform programme to Brussels in April to show it can hit the deficit target over the longer time frame, EU Economic Affairs Commissioner Pierre Moscovici said.

In practice, that means French budget plans will have to be adjusted to produce savings equal to 0.5 per cent of GDP to set against the deficit, compared with the current 0.3 per cent.

"France has already announced reforms in the past few days. We expect France to present a more complete national reform programme in April which we will consider in May," added Moscovici, a former French finance minister.

Penalties remain on the table if France still fails the EU's tests, Moscovici added.

"Sanctions are always an option," he said. "But sanctions are always a failure - a failure for those imposing them and those receiving them."

The new French deadline is now in politically sensitive territory during France's next presidential election in 2017.

Finance Minister Michel Sapin reaffirmed France's commitment to meet the 3 per cent target by 2017, saying in a statement that "it is exactly the goal the government fixed in its 2015 budget and its medium-term finances plan."

Feeling the pressure from the EU, Paris in December revised its deficit forecast for 2015 to 4.1 per cent from 4.3 per cent, still way above the EU's 3 per cent ceiling.

It also revised its estimates for 2016 to 3.6 per cent and for 2017 to 2.6 per cent.