EU welcomes French and Italian budget tweaks

The European Commission called tweaks to France and Italy's 2015 budgets "useful and constructive" on Tuesday as it prepared to decide whether the countries' efforts to curb their deficits have been enough to meet EU rules.

“We are still analysing the information that was sent to us by Italy and France in particular,” a commission spokesman said on Tuesday in response to a question on whether Paris would avoid a demand from Brussels for further budget changes.

The commission will announce its findings "at the latest" by Wednesday's deadline, two weeks after European Union states had to file their 2015 budgets for approval, the spokesman said.

“We welcome the fact these member states have committed themselves to the process of constructive dialogue with the commission,” the spokesman said.

“We consider the French government’s letter, like the Italian government’s, a useful and constructive contribution.”

On Monday, Italy and later France published letters to commision vice president for economic affairs Jyrki Katainen outlining adjustments to next year's budgets that would further trim deficits and bring them closer to the levels set out in agreements among member states.

Both centre-left governments have been arguing with Germany and its conservative chancellor Angela Merkel to be allowed not to cut their spending as sharply as EU rules dictate in order to prevent the euro zone economy slipping back into recession.

Berlin has insisted that both need to show more effort in reducing “structural” deficits, for example by reforming welfare and other systems in line with demographic change.

But German leaders also want to avoid an all-out clash with Paris in particular, and of fanning anti-EU sentiment in France, long Germany’s key partner in forging closer European integration.

A failure to satisfy the Commission could result in one or both governments being asked to make further changes in their budget and, ultimately, facing fines if they refuse. Officials have been involved in intensive negotiations since the plans were lodged two weeks ago to find a compromise.

At issue is both the development of the euro zone’s second and third biggest economies - although European officials point out that the budget adjustments involved are barely of economic significance - and the political credibility of the currency.

Smaller euro states, such as Ireland, Portugal and Greece, which have put voters through tough austerity programmes to meet EU rules, are angry that France is trying to bend them.

Italy said on Monday it will scrap some €3.3 billion of planned tax cuts. France said that its additional 2015 resources would come from lower-than-expected costs on interest payments and contributions to the European Union’s budget, which with other cost savings are worth some €1.5 billion.

Along with other measures, that should allow France to reduce its structural deficit, which excludes the impact of business cycle and is more closely watched in Brussels, by more than 0.5 percentage points of GDP, French officials say.

That is more than twice the originally planned reduction of 0.2 percentage points in the structural deficit. Italy’s structural deficit should fall some 0.3 percentage points under its revised plan, compared to an originally proposed 0.1 point.

France faces a tougher hearing from Brussels than Italy because its budgeted deficit is well above an EU ceiling of three percent of GDP - at 4.3 per cent - while Rome is running a total deficit that is below the permitted limit.

Other EU countries are also in the spotlight. Austria said on Tuesday it will cut its 2015 budget deficit by up to another 0.3 per cent of gross domestic product, responding to pressure from Brussels to justify a shortfall higher than the EU rules allow.

Reuters