France is seeking to fend off the risk of being fined for its budget slippages by telling the European Commission it will take extra action if needed to meet its structural deficit target, a letter seen by Reuters shows.
The European Commission is scheduled to rule on France’s budget deficits on February 27. Theoretically, it could slap on a fine, but a compromise giving the eurozone’s second-largest economy a reprieve in exchange for reforms is much more likely.
The letter’s commitment to take more measures if needed could be crucial in reaching such a compromise.
“I want to reaffirm France’s commitment to meeting in 2015 the structural adjustment effort of 0.5 per cent of GDP foreseen by EU rules,” Finance Minister Michel Sapin said in a February 16 letter to EU Economics Affairs Commissioner Pierre Moscovici.
“We will fine-tune in the coming weeks our evaluation of the outlook for our public deficit in 2015 and will draw the consequences on possible additional measures we should envisage,” Sapin wrote.
Budget Minister Christian Eckert said last week the government could, for instance, increase the share of the budget allocated to ministries that is set aside and frozen.
To prove its commitment to reforms, the government decided on Tuesday to ram a flagship economic reform law through Parliament by decree to avoid any risk of it being voted down by backbench rebels.
The European Commission estimated earlier this month that the cuts planned by France so far amount to a cut of only 0.3 per cent of GDP in its structural deficit, which excludes the effects of the economic cycle and one-off revenues and spending.
Sapin acknowledged in his letter to Moscovici that the EU executive and France still disagreed on how much the savings made by France will cut its 2015 deficit. He said France would announce an updated budget and reform plan in mid-April.
That is well after the EU executive is to rule on France’s budget, but Sapin said it was hard to make an assessment before 2014 deficit data is reported at the end of March.
The effect of low inflation and oil prices is also unclear at this stage, he said. French consumer prices fell on an annual basis in January, their first decline in more than five years.
Moscovici, who is preparing the Commission’s ruling on France, has repeatedly said he prefers to avoid sanctions. He was France’s finance minister before Sapin and at the time obtained a two-year delay from the EU on budget targets.