EU Gives France Two More Years to Meet Deficit Goal

France was given two more years to bring its budget deficit below European limits, as the European Commission asked for further budget-taming efforts without imposing fines.

France needs to cut its structural deficit by 0.5 percentage points in 2015, said Valdis Dombrovskis, the commission’s vice president for the euro. The French government is currently on track to narrow the cyclically-adjusted shortfall by 0.3 percentage points, according to the commission’s latest forecast.

“It’s clear that France needs to step up its efforts both on fiscal and structural reforms,” Dombrovskis told reporters after the commission met Wednesday on the budget decisions.

In extending France’s deadline from 2015, the Brussels-based commission avoided imposing unprecedented sanctions on three members states. It had previously warned that the 2015 budget plans of France, Italy and Belgium risked breaching the European Union’s spending rules.

National governments in Rome and Brussels also escaped further action, according to today’s announcement. The commission decided not to open excessive-deficit procedures on Italy and Belgium because of their debt levels.

France’s deficit has already exceeded the EU’s 3 percent target for seven consecutive years. EU Commission President Jean-Claude Juncker has pressed France and other indebted nations to offer specific plans on how they will overhaul their economies and bring their national accounts back in line.

Germany’s Imbalance

In addition to the debt procedures, the commission also considered which nations have economic imbalances. In this area, France has taken promising steps already and needs to make further ambitious moves, said EU Economic Affairs Commissioner Pierre Moscovici, who served as France’s finance minister during some years that it breached the limit. France needs to present new measures in April for review in May.

Budget rules need to be respected, Moscovici said. He pledged the commission would use all tools at its disposal if necessary.

The commission didn’t ask for an action plan from Germany, whose current account surplus is also outside the target range. Moscovici said Germany is in a situation of imbalance and needs monitoring.

Governments are required to narrow budget deficits to within 3 percent of gross domestic product and to reduce debt to 60 percent of GDP. They can ultimately face fines of as much as 0.5 percent of GDP if they do not take effective action, after other factors such as growth potential are taken into account.

Of the three countries that were placed in the spotlight in November, France was closest to a potential multi-billion-euro fine since it already faced enhanced surveillance because of its wide deficit.

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