The EU’s Economy Commissioner Pierre Moscovici sends a stark warning to the French government, saying Paris must “make more of an effort” to reduce its fiscal deficits, which could otherwise threaten macroeconomic stability in the Eurozone.
Kristian Rouz — European Commissioner for the Economy Pierre Moscovici harshly criticises the French government, saying Paris must get its public finances back in order. Moscovici’s comments come amid the ongoing standoff between the EU and Italy, whose proposed 2019 budget has fuelled fears of another debt crisis explosion in the Eurozone.
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Moscovici said France’s proposed budget for the next fiscal year does not meet the EU requirements of target budget deficit. EU officials reviewed France’s budget proposals over the recent days — and just weeks after they warned Italy that its planned budget deficits are running above the bloc’s standards.
France and Italy are the second- and third-largest Eurozone economies, meaning budgets woes in both could bring debt turmoil in the bloc closer.
“What I want to tell France is this: make more of an effort — just one more push,” Moscovici, France’s former Finance Minister, said. “Even though things are heading in the right direction, and despite the fact that your financial situation is in no way comparable to Rome’s.”
Moscovici’s remarks follow the joint push by Germany and France to establish a common Eurozone budget by the year 2021. This would also mean a common fiscal policy, allowing Brussels to address economic risks and developments challenges across the bloc in a quicker and a more efficient manner.
“We want to enter (the common budget agreement) into force by 2021,” Freance’s Finance Minister Bruno Le Maire said after his recent meeting with his German counterpart Olaf Scholz.
According to Le Maire, the common Eurozone budget would help “promote greater convergence” and “have a stabilisation function” to offset unexpected shocks to the bloc’s macroeconomic stability.
However, Moscovici pointed out France’s own finances could be is a disarray — which could effectively undermine La Maire’s push for a common European budget.
“The preliminary evaluation of the Commission indicates that France’s trajectory does not respect the rhythm of debt reduction in 2019,” the European Commission said in a letter to the French government.
EU officials stressed that France must be cutting its fiscal deficits by 0.6 percent of its GDP — but instead, Paris said it would only reduce the deficit by 0.2 percent.
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According to the EU’s Stability and Growth Pact (SGP), all member states must keep their budget deficits below the limit of 3 percent of their GDP. Meanwhile, EU members must keep their overall public debt under 60 percent of their GDP.
The EU said only a handful of nations — such as Finland, Denmark, and Estonia — have been in compliance with the SGP deficit rules. For their part, France’s debt has been roughly 100 percent of its GDP and increasing in the recent years, while Italy’s 132-percent debt-to-GDP ratio had been declining until the populist government in Rome opted to reverse course.
The European Commission also sent letters to Spain, Belgium, Portugal, and Slovenia warning these countries against growing their public spending while cutting budget revenues. EU officials said a lack of fiscal responsibility across the Eurozone could impair the bloc’s chances to withstand the next economic crisis.
The Commission has taken a particularly tough stance on Italy. Rome’s proposed budget would increase Italy’s structural deficit by 1 percent — exceeding the EU’s 0.6-percent reduction request. Italy faces possible EU sanctions over the unsatisfactory budget proposal, such as restrictions to its ability to borrow money.
But the Italian government dismissed the EU’s warning yet again.
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“A letter arrived from Brussels? I am also waiting for one from Father Christmas,” Italy’s populist Deputy Prime Minister Matteo Salvini said.
For his part, Moscovici warned Italy against belligerent rhetoric, urging Rome to cooperate with the EU for the sake of macroeconomic stability in the bloc. The EU Economy Commissioner also reiterated France and other debt-ridden Eurozone member states could consider austerity policies to fix their finances.