MNI: EU Already Looking At Flexibility For France- Officials

MNI (BRUSSELS) - MNI (BRUSSELS) - MNI (BRUSSELS) - European Union officials are already looking at ways to allow leeway to a fiscally-constrained France under the bloc’s new fiscal rules, even as they prepare to launch an Excessive Deficit Procedure against the country next week, officials told MNI.

While details are confidential, MNI understands that France will be obliged to make an average annual fiscal adjustment of around 0.5% - 0.6% of GDP over the course of what is likely to be an extended seven-year programme. But officials are aware that the next French government will not see reducing its budget deficit to the EU’s regulation 3% of GDP from last year’s 5.5% as a priority, even though the more radical policy proposals by left-wing parties involved in coalition talks after this month’s parliamentary elections, including a restoration of the retirement age to 60 from 64 at a cost of EUR20-40 billion, are likely to be watered down. 

The rules already give France and other high-debt states significant flexibility, officials noted, pointing to how the bloc’s finance ministers have the power to decide a new adjustment path if necessary. EU regulation states that “in case the original path is no longer feasible, due to objective circumstances, the Council should be able to set a different path” under the EDP.

“The EC will always find a way to justify flexibility,” said one source, suggesting that the definition of the legal term “objective circumstances” in the new regulation could be reinterpreted in a broader sense. (See MNI: Multi-Year Fiscal Plans For EU States Delayed Until Autumn- Officials)

One senior EU official stressed it was premature to be discussing extra flexibility with a new government yet to be put together in France, noting the existing wiggle room in the fiscal framework.

EXISTING FLEXIBILITY

“There is already a bit of flexibility, such as the consideration of ‘relevant factors’ and ‘special circumstances’ when it comes to assessing whether a country does in fact have an excessive deficit,” the official said.

None of this is likely to please countries such as Germany, the Netherlands and others belonging to the so-called frugal group, which are expected to insist that there should be no further flexibility shown towards France beyond that already allowed under the new and more growth-friendly fiscal regime. (See MNI POLICY: European Fiscal Board To Call For Spending Restraint In Report)

“I think the real discussion will start if they do not comply with their trajectories. But we will not know whether that happens before next year,” said one frugal source, adding that he did not regard the medium-term debt trajectory as set by the EU Commission as “very demanding”. 

EU officials will be aware also that Marine Le Pen from the hard-right National Rally is a leading contender for the 2027 presidential election, said Eric Maurice, policy analyst at the European Policy Centre,

“You can’t go from very ambitious promises to a kind of – maybe not austerity - but still fiscal discipline,” said Maurice. “Brussels will have difficulties managing that, but it will also understand in this context the risk of cutting spending too much. Some kind of common understanding will be necessary at some point.”

The Commission sent out medium-term debt trajectories to EU states on June 21. These should be agreed with member states in September and early October and will also incorporate the requirements of Excessive Deficit Procedures.