France said that it would cut its budget deficit next year by an additional 3.6 billion euros, a move that it hopes will be enough to avert a bruising fight with Brussels over its public finances, reports The Financial Times.
In a letter sent to the European Commission on Monday, the eurozone’s second-largest economy said that the additional cuts would boost the country’s structural adjustment efforts next year to above 0.5 per cent.
Michel Sapin, finance minister, said that he had “no doubt” that the additional measures would “allow the commission to fully assess France’s structural adjustment efforts in 2015”.
He added: “Our approach is thus in line with EU rules and the room for manoeuvre that they contain.”
The announcement comes just two days before the European Commission was set to decide on whether to reject France’s draft budget for next year – which would have led Brussels to make the politically explosive move of returning the legislation to Paris for a rework.
Until recently, France had stood by a promise to reduce its budget deficit to 3 per cent of gross domestic product by next year, the upper limit permitted by EU rules.
But the socialist government of President François Hollande has since said that anaemic growth coupled with low inflation would make hitting those targets impossible. Instead, Paris said this month that next year’s budget deficit would be closer to 4.3 per cent of GDP.
At the same time, France has also flouted its structural deficit target, which adjusts for the economic cycle. Paris was supposed to cut it by 0.8 percentage points, but, until Monday, had only promised a 0.2 point improvement – making it difficult to prove to the commission that it was doing enough to earn a pass.
The Commission has signalled to Paris that a 0.5 per cent adjustment would be enough for a pass, conjuring the prospect of averting a showdown on Wednesday – and of potentially weeks of tense discussions.
The additional adjustment efforts break with Paris’s hitherto defiant tones towards Brussels. France had been far less accommodating than Rome, which also received a formal letter from the commission last week informing them that their 2015 budget plans risked violating the EU’s fiscal rules.
Read more of this report from The Financial Times.