Brussels is preparing to send France a yellow card due to its excessive public deficit. Small consolation, the country is far from being the only one to be singled out by the European executive which will publish reports on Wednesday on the economic and budgetary situation of each of the 27 countries of the European Union. The Commission will note that almost ten of them exceeded the limit of 3% of GDP for public deficits set by the Stability Pact last year. Adopted in 1997, with a view to the arrival of the single currency on January 1, 1999, it sets the objective of balanced accounts.
The European executive has warned for several months that it would launch procedures this year against countries violating the rules reformed and reactivated this year. They were put on hold after 2020 because of the economic crisis linked to Covid and then the war in Ukraine.
Italy at the top of the most indebted countries
The highest EU deficits were recorded last year in Italy (7.4% of GDP), Hungary (6.7%), Romania (6.6%), France (5. 5%) and in Poland (5.1%). In addition to these five countries, procedures for excessive deficits should also concern Slovakia, Malta (4.9%) and Belgium (4.4%), notes Andreas Eisl, expert from the Jacques Delors Institute. Three others are in a gray area, he explains.
Spain and the Czech Republic exceeded 3% in 2023 but plan to get back on track this year. Estonia has also crossed 3% but its public debt at around 20% of GDP is low and well below the limit of 60% of GDP set by the Stability Pact, unlike the other countries cited.
The Commission will decide on the basis of the figures for 2023 but will also take into account the expected developments for 2024 and the following years, underlines Andreas Eisl. These procedures suggest new political standoffs between Rome and Paris, on the one hand, and the Commission and the countries most concerned about compliance with budgetary rules, including Germany, on the other.
The political crisis in France worries
The case of France is particularly worrying: the country, in the sights of rating agencies, has been in political crisis since the dissolution of the National Assembly decided by Emmanuel Macron after his defeat in the European elections on June 9. Borrowing rates in Europe’s second-largest economy suddenly rose and Paris’ financial center fell under the influence of instability.
EU: reconciling budgetary rigor and investments… the reform of the Stability Pact voted by the European Parliament
The far right and left oppositions, leading in the polls, plan to open the spending tap wide but also to reverse the emblematic pension and labor market reforms recommended by Brussels. Enough to compromise Paris’ promise, already considered not very credible, to return below the threshold of 3% for the deficit in 2027. The public deficit has in fact reached 5.5% of GDP in 2023, or 15.8 billion euros more than what the government had planned (4.9%). Which led him to cancel 10 billion euros of credits for 2024.
“ No comparable crisis justifies the public deficit for the year 2023was alarmed by the general budget rapporteur Jean-François Husson (LR) during a press conference held in the Senate in mid-June, pointing out “ a confusion between the solidity, the rigor of the figures and the political bet » from the executive. The socialist Claude Raynal pointed out “ the opacity of budgetary communication “, believing that he was ” not prudent to cling all year to a deficit objective of 4.9% which has become unattainable “.
Punishments were never applied
The two parliamentarians then presented a transpartisan senatorial report, which denounced “ recklessness » of the government on the budgetary slippage of recent months, formulating recommendations to ensure better transparency of public finances. Heard by the Senate, the Minister of the Economy Bruno Le Maire refuted any concealment.
“ All information was given in good time to Parliament and the French, and all necessary decisions were taken in good time to correct the consequences of lower tax revenues than expected. “, he argued.
The new Stability Pact provides in principle for financial sanctions of 0.1% of GDP per year for countries that do not implement the imposed corrections. For example, they would amount to nearly 2.5 billion euros for France. In reality, these politically explosive punishments have never been applied so as not to push countries already in difficulty further. Since the creation of the euro, France has been in excessive deficit procedure most of the time. However, she had been out since 2017.
Correcting slippages will nevertheless be difficult in a context of low growth and geopolitical tensions. Public finances are heavily relied upon to support Ukraine against Russia, but also to invest in the green transition to deal with global warming.
(With AFP)
