Focus on France in EU economic review

June 02, 2014 - 12:00:00 am

BRUSSELS: The EU lays down the law today on how member states manage their economies, with struggling France in focus just days after a stunning election breakthrough there for the anti-EU National Front (FN).

The Commission has acquired new powers during the economic and ensuing debt crisis to ensure that the 28 member states respect European Union norms on sound finances and growth.

The review, to be published around 1200 GMT, will produce a scorecard that is expected to be very good overall for economic powerhouse Germany but much less so for others, such as France and Italy. The focus will be on deficit and debt levels, as well as what governments are doing to secure growth and jobs.

Under EU rules, budget deficits — the shortfall between income and spending — should not be more than 3 percent of annual Gross Domestic Product. Accumulated debt — the sum of all those deficits — is supposed to be kept at 60 percent of GDP.

In practice, many of the EU’s 28 states have breached these limits, some by a very large margin, and as a result were very badly exposed when the economy was torpedoed by the 2008 financial crash and subsequent slump.

Governments borrowed to fund stimulus programmes and social welfare payouts as the economy tanked, only to find they were out of money and needed to borrow more. But to do that they had to win credibility with the financial markets, which required adopting stinging and hugely unpopular austerity policies to stabilise the public finances. For 2013, the average EU budget deficit was at 3.3 percent of GDP, down from 6.5 percent in 2010, the latest Commission figures show. In the single currency bloc, it was slightly better, on the limit at 3 percent after 6.2 percent.

But debt levels last year were higher — 87.1 percent for the EU and 92.6 percent for the eurozone, up from 79.9 percent and 85.5 percent, respectively.

As the second-ranked economy, France has attracted increasing attention as it has lagged further and further behind Germany. In 2013, it had a budget deficit of 4.3 percent and total debt at 93.5 percent compared with Berlin’s zero and 78.4 percent. In April, the government of Socialist President Francois Hollande promised to get the deficit down to 3.8 percent this year and 3 percent in 2015. But Paris missed its previous deficit forecast, of 4.1 percent in 2013 and had to revise up its 3.6 percent for 2014.

The problem is that with the economy stalled, the government has had no option but to adopt another package of spending cuts and tax hikes worth about €50bn in the hope of balancing the books and hitting the latest estimates.

The goal is to cut the state’s share of all economic activity from 56.7 percent this year to 53.5 percent by 2015, a target the business sector is sceptical of, and the left hostile to, leaving Hollande stuck in the middle with record low opinion poll ratings.

“The FN vote has created the view that we have to pay attention to France, that we must not add to its problems and not give the impression that France no longer counts,” said one EU official.

In March, the Commission put France under close surveillance and told Paris to take “decisive action so as to reduce the risk of adverse effects on the functioning of the French economy and of the euro area.” AFP

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