The constable budget of the european Union has assessed the draft budget 2019 France. Verdict : it will be necessary to make some “clarifications”. This is made clear in a letter to Paris by the european commission, in which she asks him for “more information”. After the presentation of the finance bill 2019 at the Parliament, France had in effect sent its detailed project proposal to the european Commission, for evaluation.

On 1 October, the minister of Economy and finance, Bruno Le Maire, had spoken with Pierre Moscovici, the French in charge of the case, on the occasion of a meeting of european Finance ministers in Luxembourg, to de-mine the field. And for good reason : France is not quite in the nails of european fiscal rules.

of course, Paris can boast of being out of the excessive deficit procedure for the first time since 2009, reducing the gap between its revenues and expenses largely under 3 % of GDP in 2017, to 2.7% of GDP. But for the european partners of France and Brussels, it is only a first step. Now, Paris is going to have to get closer to structural balance, that is to say, the budget balance, which does not depend on the effects of economic conditions on accounts.

margins of manoeuvre exhausted as early as 2018

The rule is that member States should reduce by 0.5 points minimum structural deficit each year, once dropped below 3 % deficit. For France, this effort should even be up to 0.6 point, because it has practically bridged the gap in production increased after the economic crisis of 2008 and its debt remains well above 60 % of GDP. In other words, it is necessary to rebuild fiscal room for maneuver as long as there is still time, in order to be able to release the effort when the next crisis arrives.

But the Hex is far from to follow this logic. Emmanuel Macron, and Bruno Le Maire, has decided to limit the decline in the structural deficit of 0.1 % of GDP in 2018. Rather than drastically reduce the structural deficit, at the risk of hindering growth, the executive prefers lower taxes and does size not enough in public spending to compensate for the shortfall. The result is that the deficit is expected to remain virtually stable this year, as its structural component will almost not be reduced while its component of the economic will be affected by the slowdown of the growth. It is expected to increase from 2.7% in 2017 to 2.6% in 2018.

Aware that a reduction in the forced march of deficit risk of crack growth, the european Commission can allow member States a certain margin of manoeuvre. It allows for a deviation of 0.5 percentage points over two years compared to the reduction of the structural deficit required 0.6 point per year. With the expected decline of only 0.1 percentage point expected this year, Paris has thus used all of the flexibilities offered by the rules starting in 2018. The draft budget 2019 provides yet a decrease in the structural deficit of only 0.3 percentage point next year. Once again, Paris is giving priority to tax cuts rather than deficit reduction.

“If the speed limit is 80 kilometers an hour, it does not withdraw the licence to someone who was travelling at 81”

As it was expected, Pierre Moscovici has therefore asked Bruno Le Maire to correct his copy. In 2014, 4 billion of additional adjustments had been claimed for France. In theory, Brussels could even have block elements purely and simply the French copy. Brussels has formally the power, but the atomic weapon has never been used against any member State so far. Its use in the case of France was, of course, excluded. “If the speed limit is 80 kilometers an hour, it does not withdraw the permit for someone who rolls up to 81 “, stresses Pierre Moscovici.

France would be faced with the opening of a procedure for “significant deviation from its goal” to return to structural balance. A procedure that can – on paper – lead to financial penalties. But this is not for everyone. The Commission is not required to begin this procedure only after you have found the deviation French, that is to say, in the spring of 2020 at the earliest, when the results of the execution of the budget of 2019 will be stopped by the Insee and Eurostat, the accounting national and european level.

At Bercy, we hope to obviously avoid such an outcome. There is an emphasis on the structural reforms undertaken to attempt to convince the Commission to show mercy. The european fiscal rules do not provide for formally not have the ability to reduce the fiscal effort in exchange for reforms, except on a very supervised, such as during a change of the pension system that would involve first an increase in public spending before allowing their reduction. France has not even formally asked to take into account its reforms. But the pro-european and pro-reform Emmanuel Macron will return of course into account in the assessment of the gendarme european.

The impasse Italian

” The French situation is not at all comparable to that of Italy “, wishes to emphasize to Pierre Moscovici. The one who is doing everything to implement the european fiscal rules with ” intelligence “, even to propose an interpretation to the limit of what they allow, as he did when he avoided financial penalties for Spain and Portugal, admits that the “creativity” to its limits. Because instead of reducing its structural deficit, the coalition composed of extreme right and extreme left to be able to account for the dig significantly, while the Italian debt already exceeds 130 % of the GDP…

A new situation that puts to the test like never before by european rules, one of the cornerstones of the euro zone. “Block elements the budget of italy is on the table,” a source confirms european. “All the Finance ministers trust the Commission to address the situation in a calm atmosphere and in the dialogue with the Italian authorities, but also to apply the stability pact, explains, fatalistic, Pierre Moscovici at the exit of a meeting with a large prevent of the euro area and the EU. And to conclude : “We have never deviated from the rules and we don’t have the ability. “

The deficit of France is expected to rise 2.6% this year to 2.8 % of GDP in 2019, not far from the fateful bar of 3 %. But this degradation is related to the failover of the YEAR-a decrease of employers ‘ contributions have a lasting impact. This operation will be regarded by Brussels as a transaction that is exceptional and temporary, and no risk of putting France in flagrant contradiction with the european fiscal rules.