European Strong Stance: France Under Scrutiny for Excessive Deficit

The Wall Street – France and other EU nations have been subject to disciplinary measures by the European Commission because of their disproportionate budget deficits during the pandemic. But the precise dates for reducing the deficit won’t be revealed until November 1.

The EU cap is 3% of GDP and France’s budget deficit hit 5.5% of GDP in 2023 before modestly narrowing to 5.3% this year. Furthermore, France’s public debt exceeded the EU ceiling of 60% in 2023 with a projected increase to 112.4% this year and 113.8% in 2025 from its 2023 GDP of 110.6%. In the upcoming months, Paris and the Commission will hold talks on reducing the deficit in light of the impending snap election in France and investor concerns on public finances.

The suggestion for France was expected after numbers disclosed earlier this year revealed that the government borrowed significantly more in 2023 than projected. According to the EU’s statistics agency the budget deficit increased to 5.5% of GDP from 4.8% in 2022.

European Commission Stated

The EU’s rules compel nations to keep their budget deficits under 3% and total indebtedness below 60% of GDP. The guidelines were suspended during the Covid-19 outbreak and the aftermath of Russia’s invasion of Ukraine but they have been reinstated in a slightly modified version this year.

The Commission stated that government borrowing in the EU as a whole is under control, with the combined deficit expected to fall below 3% of GDP by 2025.

“This picture conveys a message of confidence” said Paolo Gentiloni, the Commission’s senior economic policy officer.

Yields on French bonds rose after President Emmanuel Macron scheduled a surprise election for the legislature, which will be held in two rounds on June 30 and July 7, but have since dropped from their June 11 high. Investors are concerned that the new legislature will be gridlocked or dominated by right- or left-wing parties, causing borrowing to rise even further.

The Commission stated that if EU states agree to initiate an excessive deficit procedure against France and other governments, proposals to reduce borrowing will be submitted in November.