EU rebukes France for breaking budget rules
BRUSSELS: The EU on Wednesday reprimanded France for breaching the bloc’s budget rules under President Emmanuel Macron, 10 days before snap elections marked by lavish spending promises.
BRUSSELS: EU leaders and representatives talk ahead of an informal EU leaders summit to discuss electing the President of the European Council, nominating the President of the European Commission and appointing the High Representative of the Union for Foreign Affairs and Security Policy, in Brussels, on June 17, 2024. – AFP.
The news will be a blow to Macron as it is the first time France returns to the EU’s public spending sin bin since he came to power in 2017. And it sets the stage for a potential clash between Paris and Brussels following elections on June 30 and July 7 - in which the far right and left, ahead in the polls, are pledging to spend billions more at a time when France will need to make cuts.
Alongside France, the European Commission said “the opening of a deficit-based excessive deficit procedure is warranted” for Belgium, Italy, Hungary, Malta, Poland and Slovakia.
The procedure kickstarts a process forcing a country to negotiate a plan with Brussels to get their debt or deficit levels back on track. The seven countries had deficits - the shortfall between government revenue and spending - above three percent of gross domestic product, in violation of the bloc’s fiscal rules. The centrist Macron plunged France into political turmoil by calling the snap vote after his party’s crushing defeat to the far right in EU elections earlier this month. Finance Minister Bruno Le Maire has warned that France could be thrown into a debt crisis if the spending programs of either the far right or a new left-wing alliance were adopted.
But senior EU officials refused to be publicly drawn on what the impact of France’s vote could be on its fiscal discipline. A French finance ministry source said France’s deficit would return from last year’s 5.5 percent to below three percent by 2027 “provided a new government doesn’t go in a different direction”.
Brussels is reprimanding nations for the first time since the EU suspended the rules after the 2020 COVID pandemic and the energy crisis triggered by the Ukraine war, as states propped up businesses and households with public money. The EU spent two years during the suspension overhauling the budget rules to make them more workable and give greater leeway for investment in critical areas like defense.
But two sacred goals remain: a state’s debt must not go higher than 60 percent of national output, with a public deficit of no more than three percent. “Our economic and fiscal policies are now entering a new cycle,” said the EU’s economy commissioner, Paolo Gentiloni. “This does not mean ‘back to normal’, because we are not living in normal times; and definitely not ‘back to austerity’, because this would be a terrible mistake.”
Countries failing to remedy the situation can in theory be hit with fines of 0.1 percent of gross domestic product (GDP) a year, until action is taken to address the violation.
In practice, though, the commission has never gone as far as levying fines - fearing it could trigger unintended political consequences and hurt a state’s economy. EU officials have however stressed there would be stronger enforcement this time round. The commission said states must send their multi-annual spending plans by September 20 for scrutiny and it will then publish its recommendations in November.
Meanwhile, eurozone stock markets slid Wednesday after the European Commission reprimanded France for breaching the EU’s budget rules, a further blow for the country in the midst of political turmoil ahead of surprise elections. London rose on a sharp slowdown in UK inflation, while telecoms giant Vodafone stock jumped two percent after the mobile phone giant offloaded most of its stake in Indian mobile tower operator Indus Towers for $1.8 billion.
Paris led the fallers after the European Union’s executive arm placed France back in the EU’s public spending sin bin for the first time since President Emmanuel Macron rose to power in 2017. Investor sentiment has been rocked ever since Macron called a snap election last week in response to a far-right surge in EU elections. Macron’s centrist bloc is currently trailing third in polls behind Marine Le Pen’s far-right National Rally (RN) party and a new left-wing alliance New Popular Front.
Investors fear that French public finances could worsen significantly as a result of either tax-cutting policies by the far right - or the repeal of pension reforms by the left. “The French CAC once again finds itself at the bottom of the pile, with Goldman Sachs warning that a Le Pen victory would see the country’s debt burden swell to the highest level since 1950,” Scope Markets analyst Joshua Mahony in reference to Wednesday’s performance.
Elsewhere, Asian stock markets finished mixed following yet another record showing in New York on Tuesday, which was fuelled by data that boosted US interest rate cut hopes. — AFP.
