Germany Tells France to Use Time Well in Budget Debate

The European Commission should “take all necessary steps” to ensure governments meet fiscal deficit targets, the euro bloc’s finance ministers said.

The ministers, meeting today in Brussels, backed the commission’s proposal to give France and Italy, together with Belgium, until March to take additional measures to reduce their deficits and debt and make their economies more competitive.

“The time has to be used to close the gap,” Dutch Finance Minister Jeroen Dijsselbloem, who led today’s meeting, told reporters. “Either by new measures or by more effective measures or by finding agreement with the commission on measures already proposed, but the gap has to be closed.”

The commission chose last month not to immediately punish countries whose budgets risk breaking rules. With the EU lowering its growth forecasts for the 18-nation bloc, unemployment at 11.5 percent and the European Central Bank considering more stimulus as inflation matches a five-year low, governments want more leeway on spending and taxes.

France’s structural deficit in 2015 -- stripping out the effects of the economic cycle -- will narrow by 0.3 percentage point of gross domestic product, according to the EU Commission. The nation’s target is a 0.8 percentage-point reduction.

French Finance Minister Michel Sapin has said a crackdown on tax fraud, coupled with lower interest rates on French debt will allow the government to improve its deficit as it plans no tax rises for the next three years. The commission can fine countries who repeatedly miss deficit-reduction targets.

All Options

“All options are on the table when it comes to France,” EU Economic Commissioner Pierre Moscovici told reporters. “The time between now and March needs to be spent usefully.”

Italy’s structural deficit will narrow by 0.1 percentage point of GDP according to the commission, falling short of its 0.5 percentage-point reduction target. Austria, Spain, Portugal and Malta also drew up budgets that risk flouting targets, the commission said last month.

Governments are required to narrow deficits to within 3 percent of gross domestic product and to reduce debt to no more than 60 percent of GDP.

The ministers said while they accepted “unfavorable economic circumstances and the very low inflation rate” had made it more difficult for the Italian government to reduce its debt, “effective measures” are still needed.

“We’re seeing that all countries have a difficult fiscal situation because of the economic crisis -- we don’t know yet what individual countries like France or Italy will propose,” Austrian Finance Minister Hans Joerg Schelling told reporters. “It was never about who would be punished or not, rather it was a fundamental question of whether the rules count for all or not.”

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