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Brussels. – The EU issued stern warnings to France, Spain and Italy last Friday that they must hold unwaveringly to their budgets for 2014, or risk missing targets seen as key for the whole eurozone. The European Commission, wielding new watchdog powers designed to ward off a repeat debt crisis, cleared France’s draft 2014 spending plans in advance of parliamentary scrutiny, but warned there was “no margin” for slippage in reducing the Paris deficit.
The EU executive also identified considerable dangers in figures supplied by the governments in Rome and Madrid – a day after Spain, like Ireland, announced it would do without an international credit line come the January end of its banking bailout.
Imposing its will for the first time in this way on national budgets, EU Economy Commissioner Olli Rehn approved the draft budgets of all 13 eurozone countries which are not in bailout programmes – minus Greece, Ireland, Portugal and Cyprus.
The warnings to France, Spain and Italy, though, underscore a background of fragile and stuttering eurozone recovery from recession, and of big social strains in countries already applying tough measures to correct public finances.
The Commission can’t force countries to rewrite their spending plans – but after issuing such warnings, the executive need not tip-toe around in future assessments of progress measured against benchmarks agreed by all EU governments.
Tensions are now rising strongly in France, and the latest Commission reminder follows a number of recent critical reports on the outlook for French reforms.
The Commission said measures contained in the French government’s 2014 budget suggest “adequate progress” towards an extended 2015 deadline for meeting the European Union’s deficit ceiling, “albeit with no margin.”
France is the eurozone’s second-biggest economy, but French output shrank in the third quarter according to the latest growth figures. The government in Paris made only “limited progress” in 2013 in tackling root budgetary issues, the Commission said.
French Finance Minister Pierre Moscovici, in Brussels for two days of talks among eurozone and EU counterparts, told AFP that the verdict amounted to a seal of approval for French policy on public finances.
“It’s a sort of certification of the seriousness and the credibility of France’s budgetary policy,” Moscovici said after Swedish Finance Minister Anders Borg flagged up “really worrying” developments in France.
France has obtained a two-year extension to a previous deadline for achieving deficit targets, and was supposed to post deficit figures of 3,9 percent of gross domestic product for 2013, 3,6 percent for 2014 and 2,8 percent for 2015.
The EU’s Stability and Growth pact obliges member states to post deficits not greater than 3 percent of GDP, and to head towards accumulated debt no higher than 60 percent of output. Both ceilings were routinely flouted by EU and eurozone states prior to the global financial crisis and then the eurozone debt crisis.
A number of eurozone countries got into serious financial difficulties and had to be rescued, on condition that they applied radical reforms to cut public deficits and restructure their economies.
This required big cuts in state spending, increased unemployment, cut tax revenues, and pushed the eurozone as a whole into recession.
Eurozone finance ministers re-convene in Brussels on Friday to discuss the results of the budgetary surveillance, when pressure will likely be maintained on each of the big national economies in the single currency. EU Economy and Euro Commissioner Olli Rehn signalled concern that Spain’s public deficit and Italy’s debt could get worse.
Spain’s draft 2014 spending plans are “at risk of non-compliance,” the EU executive said, as Spain struggles towards a delayed 2016 target to return within EU norms, while Italy may also miss debt-reduction targets. Rehn said that Italy had been denied the right to class some spending under a special exemption for perceived growth-enhancing investment.
“Every day this year there has been a politically-sensitive moment in Italy,” Rehn told a press conference when asked if that decision raised the risk of a return to political turmoil.
“We just have to do our job . . . and Italy just has to practice what it preaches,” he underlined.
There was also a reminder for Germany – under Commission pressure to re-balance its economy to stimulate domestic demand – to submit an updated draft budget as soon as a new federal government is agreed under difficult coalition negotiations. – AFP.
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