Brussels gives France two further years to hit 3% deficit target

France was given an extra two years to reach its budget deficit target by Brussels yesterday, as the European Commission published its assessments of European economies.

The euro zone’s second-largest economy has been given until 2017 to reduce its budget deficit to 3 per cent of gross domestic product, having previously secured two previous reprieves from Brussels.

France was one of three European countries, along with Italy and Belgium, who were put under watch by the European Commission in November after failing to convince the commission they were not in breach of European stability and growth pact rules. EU fiscal compact rules state that countries must maintain a budget deficit of 3 per cent of GDP, while debt should not exceed 60 per cent of GDP. Belgium and Italy in particular have been struggling with excessive debt levels.

Excessive deficit procedure

Yesterday, European Commission vice-president Valdis Dombrovskis confirmed Italy and Belgium would not be placed into "excessive deficit procedure" – a ranking that could lead to fines being imposed on countries for breaking rules. The commission will make a judgment on France in three months' time he said, warning that more effort was needed from France to bring its budget deficit to below 3 per cent of GDP.

“It’s clear that France needs to step up its effort both on the fiscal and structural reform side,” he said, noting that France’s lack of competitiveness was a major issue for the economy.

He said that France needed to deliver an additional 0.2 per cent of GDP in fiscal adjustment. “If France does not achieve this it will [then lead to] the stepping up of the excessive deficit procedure,” he said.

EU economics commissioner Pierre Moscovici, a former French finance minister, said that while the recent reforms presented by the government of François Hollande were a "step in the right direction", the commission expected France to submit a more ambitious national reform plan in April.

“We will then reconsider the situation in May and will see if an excessive deficit procedure is warranted,” he said.

He noted that French prime minister Manuel Valls was "at this very moment" introducing labour market reforms which the government hopes to introduce before the summer.

The French government is trying to reform worker representation rules as well as change the current labour market system which discourages companies from hiring more than 49 workers.

Germans warned

The European Commission also delivered a harsh warning to Germany, which it criticised for a lack of investment.

Noting the lack of sufficient public and private investment in Germany, Mr Moscovici said this represented “a drag on growth now and a risk to growth in the medium term”.

“There is a need for decisive policy action,” the French commissioner said.