Commission delays decision on 2015 budgets
The European Commission has given France, Italy and Belgium three months to prove that they intend to comply with eurozone budget rules and that they are reforming their economies accordingly. The three countries risk facing sanctions if they fail to do so.
“The three member states have committed at the highest level, at the executive level, to implement structural reforms in early 2015,” said Pierre Moscovici, the European commissioner for economic and financial affairs. He also suggested that both France and Italy may need to announce additional cuts and reforms to ensure the Commission’s approval.
Valdis Dombrovskis, the Commission vice-president for the euro and social dialogue, underlined that if the three countries did not follow through on their commitments, the eurozone budget rules would be applied in full – implying sanctions and intense scrutiny of the countries’ economic policies.
The decision averts a battle between Jean-Claude Juncker, the president of the Commission, and the leaders of the eurozone’s second and third largest economies – François Hollande, France’s president, and Matteo Renzi, Italy’s president. Hollande and Renzi are demanding that budget rules be applied more flexibly given the eurozone’s economic stagnation.
The Commission this morning adopted opinions assessing whether the draft 2015 budgets of eurozone member states indicate that they will comply with eurozone budget rules next year.
The opinions concluded that the draft budgets of seven member states – Belgium, Spain, France, Italy, Malta, Austria and Portugal – risked “serious non-compliance” with eurozone budget rules. But the Commission expressed particular concern about the draft budgets of France, Italy and Belgium and said it would reassess their budgetary situation in March.
Moscovici explained this postponement by saying that it would be better placed to do this in three months-time when it would have complete data for 2014 and when the member states will have adopted their 2015 budgets.
Eurozone finance minister will discuss the opinions at a Eurogroup meeting on 8 December. If the Commission concludes that a member state is breaching eurozone budget rules, it can recommend that national finance ministers fine it.
Hollande announced in August that France would not meet its targets under eurozone budget rules in 2015. The government’s draft budget for 2015, published in August, plans a deficit of 4.3% in 2015, considerably above the 3% limit set out in the eurozone’s stability and growth pact. At the same time the budget sets out plans to makes savings in the budget worth €50 billion over 2015-17, including saving of €21 billion in 2015.
As for Italy, Renzi’s government does intend to stay within the 3% limit, but is not planning to cut spending in line with eurozone targets. This gives rise to concern because Italy has debts worth 132% of its gross domestic product.
Belgium’s draft budget, adopted in the wake of protracted coalition negotiations, foresees a deficit in 2015 of 2.1%. In its opinion on the draft budget, the Commission points out that this would not only deviate from Belgium’s eurozone targets, but it also expresses concern that the Belgian government is basing its projections on over-optimistic growth forecasts. The Commission calculates that the deficit will actually be 2.8%.
But the Commission’s detailed opinions are most critical of France.
“The Commission is also of the opinion that France has made limited progress with regard to the structural part of the fiscal recommendations issued by the [finance ministers] in the context of the 2014 European Semester and thus invites the authorities to accelerate implementation,” it reads.
By contrast, it concludes that both Italy and Belgium have made “some progress” on their objectives.
The Commission also published letters from the leaders of France, Italy and Belgium outlining the reforms that they commit to undertake before the Commission’s review of their situation in March.
All of the letters – from Manuel Valls, the French prime minister, Pier Carlo Padoan, Italy’s finance minister and Charles Michel, Belgium’s prime minister – argue that the lack of growth in the eurozone makes cuts and reforms much more difficult and that this should be taken into account when assessing the budget.
Each letter outlines the cuts and reforms planned by the government, but makes no commitment of additional savings or reforms.
Moscovici said that in March the Commission will examine the extent to which the three countries have fulfilled their commitments for 2014, as well as the reform efforts they have taken in early 2015. The Commission will also have the member states’ actual budgets for 2015, as all member states must adopt these before the end of 2014 under eurozone budget rules.