France laid down the gauntlet to EU partners yesterday with a 2015 budget setting out how it would bring its borrowing back to within EU limits two years later than promised, a retreat it blamed on a fragile economy.
Without specifically naming France, German Chancellor Angela Merkel quickly stressed that rebuilding sound public finances could not be taken lightly.
The announcement from Paris came hours after news that Italy too planned to ease the pace of painful deficit reduction to try to counter another year of recession.
“We have taken the decision to adapt the pace of deficit reduction to the economic situation of the country,” French Finance Minister Michel Sapin told a news conference.
“Our economic policy is not changing, but the deficit will be reduced more slowly than planned due to economic circumstances – very weak growth and very weak inflation.”
Under the French budget plan, the public deficit is set to fall from 4.4 per cent of output this year to 4.3 per cent next year, 3.8 per cent in 2016 and 2.8 per cent in 2017 – below the European Union-mandated threshold of three per cent.
No further effort will be demanded of the French
Previously, France had promised EU partners it would bring its deficit below three per cent by next year, a deadline that had already been extended from 2013. France’s spending watchdog doubted even the new targets could be reached.
“No further effort will be demanded of the French, because the government – while taking the fiscal responsibility needed to put the country on the right track – rejects austerity,” the budget statement said. Austerity or not, Merkel said sustainable economic growth could only be built on the foundation of solid public finances.
“We are not at the point where we can say the crisis is fully behind us. Therefore, it is now important for everyone to fulfil their commitments and obligations in a credible way,” she told a business conference in Berlin.
There was no immediate comment from other EU governments but Germany’s main exporters’ association, the BGA, accused France of putting the euro and the wider regional economy at risk.
“If that country doesn’t figure a way out of the downward spiral, the euro and therefore Europe are at risk,” BGA president Anton Boer-ner said.
President Francois Hollande is resisting pressure from his Socialist Party to ease off even more emphatically on cutbacks but also has to contend with an approval rating at a record low 13 per cent.