While the European Commission insists on economic reform in Greece, it is taking a more tolerant approach to France’s stubborn budget deficit.
Two years ago EU finance ministers gave France another two years to bring its deficit down to the 3% of GDP mandated by EU treaties. The French government, however, now predicts that the deficit will remain at 4.1% both this year and next and only fall to the required 3% by 2017.
The rules for controlling budget deficits in Eurozone countries were first set out in 1991 in the Stability and Growth Pact. They were adopted at the insistence of German Finance Minister, Theo Waigel, and the regulations implementing them included sanctions for countries who failed to abide by the borrowing limits.
When Germany and France both ran excessive debits in 2002 and 2003, the Commission proceeded with enforcement action. Sanctions, however, required the approval of the EU’s Economic and Financial Affairs Council, and when it came to the vote, Germany supported France and France Germany. The Commission failed to win the required majority. In the event both countries faced no penalty for violating the Stability and Growth Pact.
It seems than that little has changed in the Eurozone. Fiscal discipline is honoured more in the breech than the observance, especially for the larger economies. The Commission could impose fines on France for its persistent intransigence, but has chosen not to do so.
One final thought: does anyone actually believe the French deficit will fall to below 3% in 2017 – the year of a presidential election?