EC Fiscal Farce Continues: Burying Itself In Debt, France Postpones Budget Targets For 4th Straight Year


France escaped condemnation for abandoning its budget targets for the next two years on Friday, after eurozone finance ministers said they would await an evaluation of Paris's budget proposals by the European Commission.

Earlier this week, Finance Minister Michel Sapin said lower-than-expected growth meant France would have to delay its plan to cut its budget deficit to the 3% of gross domestic product until 2017. The delay comes on top of a previous two-year extension to 2015 that Paris had been given by the commission, the European Union's executive arm, last year.

Under European Union rules, member countries must keep their budget deficit below 3% of GDP. Eurozone countries that fail to meet deficit targets agreed with the commission—and approved by the currency union's finance ministers—risk financial sanctions of up to 0.2% of GDP.

But German Finance Minister Wolfgang Schäuble and his Dutch counterpart Jeroen Dijsselbloem, who as the president of the Eurogroup leads discussions among eurozone finance chiefs, stopped short of calling for sanctions. Instead, they said finance ministers will wait for the commission's evaluation of France's 2015 budget, which will start in October.

"Michel Sapin has announced that he will propose €21 billion in spending cuts for 2015," said Mr. Schäuble, as he arrived for a meeting with his eurozone counterparts in Milan.

Mr. Schäuble said Mr. Sapin had alerted him to the planned spending cuts ahead of the announcement, adding that they may well amount to a previously agreed spending reduction worth 0.6% of GDP, once the effects of the weak economy have been stripped out.

The German finance minister's emphasis on structural, rather than nominal, budget targets comes amid broader debate in the eurozone on how to get the bloc's economy growing again. France and Italy in particular have been calling on the commission to give more importance to the effects of weak or negative growth and allow for extra spending on investments.

Some officials have warned that governments should be careful not to undermine the credibility of the currency union's fiscal rules. "We should not forget the past," said Mario Draghi, president of the European Central Bank. Efforts in recent years to make the rules more binding, "should not be unraveled," he added.

By awaiting the commissions verdict on the French spending plans, ministers wanted to avoid an open confrontation with Paris now, a person familiar with Friday's discussion said.

However, a second official said the commission's review of France's budget could provide an opportunity to demand additional economic overhauls or spending cuts. During the assessment process, the commission can point out elements that aren't compliant with EU rules and even send the entire budget back to Paris to ask for a do-over.

Separately, Mr. Schäuble rejected calls from the commission and the International Monetary Fund to invest more government money into the German economy to help boost growth in the rest of the eurozone.

"The commission also always says that we should stick to our budget consolidation and continue with it," he said. "The recommendations from the commission are, when you pick out single elements, also contradictory."

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