A real disavowal for Paris. The European Union formally launched this Friday, July 26, the procedures for excessive public deficits targeting seven member states, including France, a first since the suspension of its budgetary rules in 2020 with the coronavirus crisis.
In addition to France, these decisions target Italy, Belgium, Hungary, Poland, Slovakia and Malta. In addition, Romania, which has been subject to such a procedure since 2019, continues to suffer the effects, “for failing to take effective measures to correct its deficit”, the Council of the EU, the institution representing the Twenty-Seven, specified in a press release.
These countries last year exceeded the limit on public deficits set at 3% of gross domestic product (GDP) by the Stability Pact, which also limits debt to 60% of GDP. They will have to take corrective measures to comply with these budgetary rules in the future, under penalty of financial sanctions.
Financial sanctions to come?
These rules were put on hold after 2020 due to the economic crisis linked to Covid and then the war in Ukraine. They were reformed and reactivated this year. The highest deficits in the EU were recorded last year in Italy (7.4% of GDP), Hungary (6.7%), Romania (6.6%), France (5.5%) and Poland (5.1%).
The Stability Pact in principle provides for financial sanctions of 0.1% of GDP per year for countries that do not implement the imposed corrections, or nearly 2.5 billion euros in the case of France. In reality, these politically explosive punishments have never been applied.
France, whose debt reaches 110% of GDP, has been in an excessive deficit procedure most of the time since the creation of the euro at the turn of the 2000s. However, it exited it in 2017.
A recovery plan to be sent to the Commission
Two weeks ago, Bruno Le Maire, Minister of Economy in the resigning French government, had indicated that France must save 25 billion euros in 2024 to straighten out its public finances. Some 15 billion in savings have already been “executed” but another 10 billion remain to be found by reducing the spending of ministries and local authorities as well as through the effect of a more effective taxation of rents on energy companies, according to Bruno Le Maire.
In terms of public deficit, Paris promises to get back on track in four years. Bruno Le Maire has set the target of 5.1% deficit in 2024 (after 5.5% in 2023), while Brussels is counting on 5.3% this year and 5% in 2025.
Now, countries targeted by the disciplinary measures will have to send medium-term plans by September on how to get back on track. The European Commission will then communicate in November assessments of these plans with details on the path to return to fiscal health.