Macron’s first budget sparks EU warning

BRUSSELS, Nov 22, (AFP): The EU warned Wednesday that French President Emmanuel Macron’s first budget risked breaking its tough spending rules, despite his efforts to lower the deficit and earn credibility for his ambitious reform plans for the bloc.

Brussels singled out the six eurozone nations of France, Belgium, Italy, Austria, Portugal and Slovenia as being on course for breaching EU regulations on government deficits.

The European Commission also sounded the alarm over Italy’s high levels of government debt, saying that it was a cause of concern for the 19-country eurozone as a whole.

“The main message to France is the importance of correction of (the) excessive deficit this year,” Valdis Dombrovskis, the commission vice president responsible for the euro, told AFP in an interview ahead of the release of its assessment of EU states’ draft budget plans.

Macron has vowed to reduce public overspending in the eurozone’s second largest economy with tough reforms and spending cuts, and French lawmakers approved his first annual budget with a thumping majority on Tuesday.

France is this year finally expected to return its deficit back under the EU-mandated three percent of GDP for the first time since the global economic crisis struck nearly a decade ago.

Macron sees lowering the deficit further as key to earning credibility with European leaders as he urges ambitious EU reforms, but squeezing spending too fast could pull the rug out from under the modest economic recovery in France.

Debt levels are also a concern in the EU, which has only recently started to make a sustained recovery from the 2008 global financial crash and the ensuing eurozone debt crisis.

Italy found itself in the EU’s crosshairs on Wednesday, with Dombrovskis and EU economic affairs commissioner Pierre Moscovici writing a letter to the government in Rome setting out their “concern”.

“Italy’s public debt remains a key vulnerability,” they wrote to Italian finance minister Pier Carlo Padoan. “Given the size of the Italian economy, it is a source of common concern for the euro area as a whole.”

Italy, the eurozone’s third largest economy after Germany and France, is predicted to have one of the lowest rates of growth in the whole EU over the coming three years.

France and Belgium had also failed to cut public debt in line with EU rules, the commission said.

The budget and debt warnings come as the youthful Macron tries to push ahead with an ambitious programme of EU reforms aimed at rebooting the bloc, and in particular the eurozone, in the wake of the Brexit vote.

His plans already risk stalling after the collapse of coalition talks in Germany placed the position of Chancellor Angela Merkel, one of Macron’s most important allies, in jeopardy.

But Brussels said it would push ahead with the release of its own proposals for the eurozone on Dec 6 as planned, despite Merkel’s woes.

European Commission chief Jean-Claude Juncker has said it is important to act as soon as possible, with the bloc’s economy likely to have the “wind in our sails” until the end of next year.

“We need to use good times to build an economy that is less vulnerable to economic shocks and more able to respond to them,” Dombrovskis added.

The European Commission plans include a “budget line” for the eurozone, which could be used to stabilise countries in case of economic shocks, and transforming the eurozone’s bailout fund into a dedicated European Monetary Fund.

Britain, which does not use the euro, was meanwhile to be lifted out of the EU’s special budget supervision after almost a decade.

The news from Brussels came as a boost to finance minister Philip Hammond as he unveiled the government’s annual budget against the backdrop of looming Brexit and growth downgrades.

“On what happens to be the day of Philip Hammond’s budget, we have a good news for him — we are closing the excessive deficit procedure for the UK,” EU economic affairs commissioner Pierre Moscovici said.