31 October 2013

Reuters: France can bank on EU budget leniency before polls

Economic fragility and fear of a far-right political backlash are preventing a clash between France and the European Commission, when the latter makes first use of its augmented budget supervision powers next month.

The outgoing Commission is cautious in seeking more austerity in its last year in office, wanting to protect what little economic recovery has been achieved and to avoid fuelling a massive anti-European vote in elections next year. So, officials in Brussels and Paris say the French can expect a soft ride - possibly to the disappointment of hardliners in Europe who wanted a confrontation.

EU Economic and Monetary Affairs Commissioner Olli Rehn, who for the first time has the right to send back national budgets of the 17 eurozone states for redrafting, is not planning to give Paris a hard time. "We will not scrutinise the budgets line by line. What is of interest to us is the broad outline of the budget and the structural balance", Rehn told Reuters in an interview.

Asked if he expected any national budget to be judged out of line with European commitments, Rehn said: "No". One reason is that France has only just emerged from recession and its progress is very fragile. There is also no bond market pressure on Paris to cut spending or reform faster, since borrowing costs are at a historic low and France is seen as benefiting from an implicit German guarantee at the core of the euro single currency area.

EU officials acknowledge that too much external pressure could be counterproductive. "The Commission is aware of the potential political backlash in favour of the nationalist extreme right and hard left if it squeezes the Socialist government too hard", an EU official involved in talks on the budget and reforms said.

While the Commission is unlikely to drop calls for France to do more to open up its economy to more competition, reduce rate tape and cut the cost of labour, officials expect the 2014 budget to get green light because it reduces the underlying structural budget deficit in line with EU rules.

Full article

© Reuters