EU gives France, Italy more time to fix budgets

28th November 2014, Comments 0 comments

The EU on Friday gave France, Italy and Belgium an extra three months until March to fix their bloated budget, but warned it would still enforce humiliating sanctions if they fail to curb spending.

The three countries were singled out for their deficits by the European Commission, the EU's executive branch, as it unveiled a tough assessment of eurozone budgets under new powers granted during the debt crisis.

But instead of immediately imposing penalties, Brussels gave them extra time to implement tough reforms, delaying a harsh verdict on national overspending amid global calls for Europe to ease up on austerity.

"The Commission will not hesitate to take its responsibilities" if they fail to take steps by March, Economic Affairs Commissioner Pierre Moscovici said as he announced the assessments.

France in particular had made "limited progress", the commission said, referring to the fact that Paris is set for a deficit of 4.3 percent of GDP in 2015, way above the EU's official 3.0 percent ceiling.

Four other countries -- Spain, Malta, Austria and Portugal -- were also at lesser risk of meeting the rules imposed after the eurozone debt crisis, the commission said.

Last month, France and Italy barely avoided having their budgets sent back for serious breaches in what would have been a major blow to the eurozone's second and third biggest economies.

- 'A clear calendar' -

New European Commission chief Jean-Claude Juncker explained the decision to extend the deadline on the grounds that the countries concerned needed more time to fix their budgets.

"I made a choice not to sanction because that would have been easy," Juncker told journalists from a group of European newspapers ahead of the announcement.

But he insisted that the Commission remained tough on budget overspending and the need for reform.

In conversations with the French and Italian leaders, "I made it clear that I don't want only promises but a clear calendar," the former Luxembourg premier said.

The pullback by Juncker, who took office on November 1, comes amid growing fears that problems in the 18-nation eurozone could spread to other parts of the world.

The bloc is caught in a slump of near-zero growth, near-deflation and high unemployment.

Data released on Friday showed inflation in the eurozone slowed to a super-low 0.3 percent in November, while unemployment held at a high 11.5 percent.

The Commission's tolerance however risks angering an impatient Germany, frustrated with the slow pace of reform in Paris and Rome.

But German Finance Minister Wolfgang Schaeuble acknowledged on Friday that "some of our most important partners are currently in a more difficult situation than we are. We know that we have a joint responsibility and that we must show solidarity."

The international call for the EU to step away from austerity, championed by Berlin as well as Juncker's predecessor Jose Manuel Barroso, is growing.

The OECD on Tuesday urged more flexibility in fiscal rules for struggling EU members like France and Italy in order to prevent another recession.

- 'Play a part' -

Despite the softer tone, the Commission ordered urgent action in detailed opinions Friday, especially with France having already won several delays to meet EU deficit rules.

"It is in the interests of the euro area that they do. Everyone must play their part to strengthen economic recovery," said Moscovici, who until last spring oversaw public spending in France as finance minister.

The extra time puts pressure on the embattled government of French President Francois Hollande to implement tough reforms that have only been announced for now.

Last week, Hollande's pro-reform Prime Minister Manuel Valls, Italy's Matteo Renzi and Belgium's Louis Michel sent letters to Brussels officials reiterating their governments' commitment to reform.

It was these letters that won the few months of reprieve, another European source said.

In Brussels, deep divisions have emerged over how to handle the Paris government's failure to meet its commitments.

Germany's Commissioner Guenther Oettinger roundly criticised France for breaking the rules and failing to bring in reforms.

"It would not be credible to extend the deadline without asking for very clear, concrete steps in return," said Oettinger, who is a close ally of austerity-touting German Chancellor Angela Merkel.

The OECD, which provides economic advice to its 34 industrialised members, this week recommended fiscal leniency for France and Italy.

© 2014 AFP

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