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France’s next government will have to tussle with EU’s spending police

France’s next government will have to tussle with EU’s spending police

by host

BRUSSELS ― It will be for France’s next government to work out how to avoid being sanctioned by the EU for its terrible finances ― a government that may well be steered by Marine Le Pen’s far right party.

With President Emmanuel Macron’s centrist party braced for electoral wipeout, the economic plans of Le Pen’s National Rally, or their leftwing rivals, could ― as far as the European Commission is concerned ― make things worse rather than better.

On Wednesday, the Commission rebuked France, along with Italy and five other EU countries for spending way above the bloc’s national ceiling, placing them in a process that could ultimately see them fined.

In the past, the EU executive has let the bloc’s second-largest economy off the hook, even when its spending burst past the limits. But as populist governments across the Continent pull at the fabric of the European establishment and more fiscally disciplined governments accuse the Commission of turning a blind eye, things are changing.

“Increased flexibility for member states to set their fiscal trajectory comes hand in hand with stronger enforcement,” Commission Vice-President Valdis Dombrovskis told reporters on Wednesday, referring to the reformed spending rules that came into force this year. “That’s how the Commission intends to proceed.”

Being named and shamed is a big deal for a country as large and as crucial for the smooth running of the EU as France. It comes as the country stands on the brink of a historic election that could see it pivot away from the political mainstream for the first time since the club of European nations was created out of the ashes of World War II.

Macron annihilation

Macron shocked Europe by calling a snap parliamentary election on June 9 after his party suffered a drubbing in a vote for the European Parliament. He gambled that would stymie the advances of the far right, but opinion polls now suggest the opposite. Macron’s centrist coalition risks annihilation by the left as well as by the far right. The election takes place over two rounds, on June 30 and July 7. Macron would remain president but could be forced to work with a government from a rival party.

That means that by the time the French government needs to submit to the Commission its roadmap in September for how to improve the figures, the country is likely to have new ministers in charge of the country’s finances. As part of the roadmap, a country can ask to extend the “adjustment phase” from four to seven years in order to soften the impact of cuts but on Wednesday a French economy ministry official declined to say whether Paris would do that. The Commission will issue guidelines about how to reduce spending in the fall.

France’s deficit ― the difference between how much it spends and how much it brings in ― stood at 5.5 percent of GDP in 2023, the second-highest in the eurozone, and is set to increase over the next two years. Its debt is estimated at 112.4 percent of GDP this year, the third highest in the common currency area.

While National Rally has rowed back on some of its more extreme economic policies, it largely pushes an agenda of tax cuts and greater public investment combined with more than a whiff of French protectionism. The left, too, the New Popular Front, is campaigning on undoing some of Macron’s pension reforms and spending lavishly.

FRANCE NATIONAL PARLIAMENT POLL OF POLLS

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For more polling data from across Europe visit POLITICO Poll of Polls.

Macron’s government has set about cutting €20 billion of public spending this year and is planning to cut at least €20 billion more in 2025. 

“Opening the floodgates to public spending at a time when we should be restoring our accounts will lead to France being placed under the supervision of Brussels and the International Monetary Fund,” Finance Minister Bruno Le Maire said.

Flexibility

The EU’s economy commissioner Paolo Gentiloni dismissed lingering concerns the bloc’s rules will trigger a return to austerity, describing the need instead for “cautious spending.”

The Excessive Deficit Procedure, now back in a supposedly more flexible format after being suspended since the Covid pandemic, is designed to rein in spending in countries exceeding the EU’s 3 percent GDP-deficit ratio.

The other countries placed in the excessive deficit procedure on Wednesday were: Belgium, Italy, Hungary, Malta, Poland and Slovakia. Romania was already in it.

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