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The European Commission issued a reprimand to France for breaching EU fiscal rules ahead of an election where front-runners made generous spending promises.
The EU executive’s decision to launch an “excessive deficit procedure” vs France is a blow to Emmanuel Macron – with a deficit well above the EU threshold – and also sets him on a collision course with a post-election government potentially dominated by a far-right or left-wing coalition.
Both groups have made major spending commitments ahead of legislative elections on June 30 and July 7 and polls leave Macron’s Revival party in third place.
The far-right National Union has promised to reverse Macron’s heavy-handed pension reform and lower the retirement age for those who started working in their teens. Marine Le Pen’s party also wants to cut VAT on food and fuel, and in the 2022 presidential campaign promised to exempt workers under 30 from income tax.
The New Popular Front, which unites the left, wants to lower the retirement age to 60, raise the minimum wage and freeze food, energy and fuel prices.
The current finance minister, Bruno Le Maire, warned that a “Liz Truss scenario is possible”, if National Rally delivers on its economic agenda, given how the short-lived British prime minister spooked financial markets with plans for big unfunded tax cuts. He issued similar warnings about the left’s spending plans.
France’s deficit – the difference between government spending and revenue – was 5.5% of economic output in 2023 and is forecast to remain at 5% in 2025, well above the EU threshold of 3%. Government debt was 110.6% of gross domestic product in 2023 and is projected to rise to 113.8% by 2025, compared to the EU’s limit of 60% of GDP. “The debt sustainability analysis shows a high risk in the medium term,” the commission said.
Six other member states in breach of EU deficit rules were subjected to the same procedure on Wednesday: Belgium, Italy, Hungary, Malta, Poland and Slovakia.
Under new rules agreed last year, countries in breach of the rules must reduce “excessive” deficits by 0.5% a year. But in an effort to avoid hurting economic growth, the rules allow more flexibility for defense spending, green and digital policies.
In theory, repeat offenders could be fined, but no country has faced such a sanction due to fears it could worsen the economic situation and fuel political tensions.
EU officials will not issue explicit recommendations to defaulting countries on how to reduce the deficit until a new commission takes office on November 1. These deficit reduction plans will also need to be approved by EU finance ministers.
EU Economy Commissioner Paolo Gentiloni declined to comment on the French parties’ spending plans, saying simply that he was confident discussions with a future French government would be “useful and have a good outcome”.
Gentiloni, a former Italian prime minister, rejected suggestions that the deficit reduction commitment signaled a return to austerity: “Our economic and fiscal policies are now entering a new cycle. This does not mean a return to normal because we do not live in normal times; and definitely not back to austerity, because that would be a terrible mistake.”
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