The European Union is preparing to reject France’s 2015 budget, according to European officials, setting up a clash that would be the biggest test yet of new powers for Brussels that were designed to prevent a repeat of the eurozone’s sovereign-debt crisis, reports The Wall Street Journal.
French Finance Minister Michel Sapin said last month that his country would run a budget deficit of 4.3% of gross domestic product next year—far from the 3% deficit it had previously pledged. Stripping out the effects of the weak economy, the government’s planned cost cuts would amount to just 0.2% of GDP, falling short of cuts worth 0.8% that it had agreed upon with Brussels.
That could put France’s budget in “serious noncompliance” with tightened EU deficit rules, likely leading the commission to send it back to Paris for revisions, European officials said. So far, the French government has said it won’t take any extra belt-tightening measures beyond what it proposed in the spring, indicating it is ready to risk a public clash with Brussels.
“People are ready to let the big boys in Brussels reject the budget,” a European official said.
The conflict with France could be joined by a budget fight with Italy, which has also said that it will miss budget targets. Italy has more leeway because its past budgets have run lower deficits than France’s, but a senior EU official called a decision about whether to confront Italy “borderline.”
The credibility of Brussels’ new powers threatens to be seriously undermined if big countries such as France and Italy are able to flout the new rules—which give the European Commission the right to demand changes to proposed budgets before they are presented to national parliaments. It would signal the tough budget regime can only be imposed on the eurozone’s smaller economies, such as Greece and Portugal.
Some European officials have drawn parallels with the way France and Germany ignored deficit limits a decade ago without consequences, a step that they believe fatally weakened budget discipline in the bloc. “What people underestimate is that what’s at stake is the entire credibility of the rules,” one of the officials said.
Read more of this report from The Wall Street Journal.