Exclusive: Brussels summons France to explain why it will ignore budgetary targets

By

In a letter addressed earlier this week to French finance minister Michel Sapin and to which Mediapart has gained access, the European Commission’s vice-president Jyrki Katainen, responsible for economic and monetary affairs, demands to know “why France plans to deviate from the budgetary targets” set by the European Council and “how France could ensure full compliance with its budgetary policy obligations”.  President François Hollande has refused to make public the letter, which he described as “of no great significance”, and which Mediapart exclusively publishes in full in this report by our Brussels correspondent Ludovic Lamant.

This article is freely available. Check out our subscription offers. Subscribe

European Commission (EC) vice-president Jyrki Katainen, responsible for economic and monetary affairs, has demanded that France explains its non-compliance with European Council budgetary targets, “regarding both the general government deficit and the adjustment in the structural balance in 2015”. 

The demand was made in a letter addressed to French finance minister Michel Sapin this week, and which is largely similar to another sent at the same time to Italian economy and finance minister Pier Carlo Padoan. While the letter sent to Cadoan was made public by the Italian government, the French government has decided that that sent to Sapin should remain secret.

Talking on the sidelines of the European Council meeting on Thursday, President François Hollande confirmed the existence of the letter to Sapin, but refused to divulge its contents. “It is a very banal letter, which has no great significance beyond asking for a number of pieces of information and precisions,” said Hollande.

However, Mediapart has gained access to the letter (reproduced in full below), and its text reveals The EC’s concern over France’s budget plans for 2015.

“According to our preliminary analysis - confirmed on the basis of the recalculation by the Commission services using the commonly agreed methodology - the adjustment in the structural deficit is expected to be well below the level recommended,” wrote commissioner Katainen, a former Finnish prime minister. Structural deficit is a public budget deficit that endures over time. “In that respect, there is a strong indication that the DBP [Editor’s note: Draft Budgetary Plan] for 2015 plans a breach of the budgetary policy obligations which stem from the Council recommendation under the excessive deficit procedure,” continued  Katainen. “Against this background, further exchanges of information have already taken place between your services and the Commission.”

“In line with the provisions of Article 7(2) of Regulation (EU) N° 473/2013 of 21 May 2013, I am writing to consult you on the reasons why France plans to deviate from the budgetary targets set by the Council regarding both the general government deficit and the adjustment in the structural balance in 2015. I would also wish to know how France could ensure full compliance with its budgetary policy obligations under the SGP for 2015.”

In theory, the EC could issue a ‘negative opinion’ against France’s budgetary plans if unconvinced by Paris’ response, which is requested by October 24th. While the contents of the letter to Sapin are similar to that sent to his Italian colleague, the tone is, in part, firmer. “It’s the proof that the negotiations with the Italians are going better, whereas those with French, which were held this week, are much more stormy,” commented one European union source, whose name is withheld.

Unlike Italy, France is now the target of an ‘excessive deficit procedure’, and which in part prompts the harder line from Brussels.

Conférence de presse lors du Conseil européen du 23 octobre 2014 © Présidence de la République

During his press conference on Thursday, Hollande said he would respect European deficit engagements “but with the maximum flexibility”, and insisted that France would not go beyond the 21 billion euros of public spending cuts that are planned in its 2015 budget programme. “We can see how we can be better mobilize certain resources, better calculate certain expenditure, but there will be no modification on this point,” he added. His government is working on the basis of a deficit of 4.3% of GDP in 2015, far from the EC’s target of 3%.  

Hollande’s strategy in the budget negotiations remains unclear, hovering between a confrontation with the EC and keeping a low profile.

A group of Members of Parliament from Hollande’s Socialist Party demanded in a statement released Friday morning that he order the publication of the letter Katainen sent to Sapin “so that the French may know the points of discussion between their country and the European commission”.

“Guarantor of this budgetary sovereignty, the French parliament should be a party to the discussion that is held between our country and the European Commission,” they added.

Below is the full text of the letter addressed to French finance minister Michel Sapin by Commissioner Katainen:

“Dear Minister,

First and foremost, I would like to thank you for the submission of France's Draft Budgetary Plan (DBP) for 2015, which we received on 15 October.

Based on the submission by France, the DBP itself does not plan to bring the general government deficit below the 3 % of GDP Treaty reference value by 2015, the deadline set by the Council in its recommendation of 21 June 2013 with a view to bringing an end to the situation of an excessive government deficit in France.

According to our preliminary analysis - confirmed on the basis of the recalculation by the Commission services using the commonly agreed methodology - the adjustment in the structural deficit is expected to be well below the level recommended. In that respect, there is a strong indication that the DBP for 2015 plans a breach of the budgetary policy obligations which stem from the Council recommendation under the excessive deficit procedure. Against this background, further exchanges of information have already taken place between your services and the Commission.

In line with the provisions of Article 7(2) of Regulation (EU) № 473/2013 of 21 May 2013, I am writing to consult you on the reasons why France plans to deviate from the budgetary targets set by the Council regarding both the general government deficit and the adjustment in the structural balance in 2015. I would also wish to know how France could ensure full compliance with its budgetary policy obligations under the SGP for 2015.

The Commission seeks to continue a constructive dialogue with France with the view to come to a final assessment. I would therefore welcome your view at your earliest convenience and if possible by 24 October. This would allow the Commission to take into account France's views in the further procedure.”

The letter sent by Katainen to the Italian finance minister, and which was released by the Italian government, is reproduced below.

-------------------------

  • The French version of this article is available here.

 

English version by Graham Tearse

Extend your reading on Mediapart Unlimited access to the Journal free contribution in the Club Subscribe