November 21, 2014
Germany decided to up the pressure on France through its commissioner Guenter Oettinger, a senior figure in Angela Merkel's CDU party. Oettinger published an article for the FT and Les Echos stating that the Commission should only grant another extension for its deficit reduction plan if France can deliver a credible plan for structural reforms.
“Any extension of the deadline by which France must correct its excessive deficit and comply with the stability pact is acceptable only if Paris makes a clear and credible commitment to reform. Yes, some steps have already been taken. But these have been too few and not sufficiently ambitious. More is needed….Therefore the commission should link any extension of the deadline to concrete, measurable policy steps; and it should also set the timeline for their implementation.”
The article says France committed to reforms in the past, naming in particular the pension reform, labour costs and corporate tax cuts, but reforms did not go far enough, writes Oettinger. The pension reform will not resolve the deficit in the pension funds in any foreseeable future, the wage setting system has yet to be reformed while the benefits of the tax cuts only kick in in a couple of years. As if to make feel the French government any better, Oettinger says:
“This should not be seen as a decision taken against France but rather as a measure for, and with, France. It is not just about one country. Without an economically strong France, the eurozone as a whole will not recover.”
The French rejection so far is an outright denial. Michel Sapin played down any risk that Paris might be fined for breaking EU budgetary rules, while several EU officials have told Reuters that a fine was still an option.
"The question of fines is brought up every time there's a meeting," Michel Sapin said on Thursday, referring to the upcoming EU decision. "It's part of the story-line some write for themselves. It is not an issue and has no substance."
Michel Sapin is now touring through Europe to gather support for his European growth strategy. He will visit Portugal and Spain first, then Italy and Germany. Sapin told the Diario Economico in Portugal that considering the degraded growth prospects and inflation, France cannot keep the 3% deficit target for next year and that France want to find with the Commission a new, more consistent path compatible with the return to growth. In an interview with Les Echos, the Spanish finance minister Cristóbal Montoro pointed out that the Spanish example shows that austerity has worked. Not much comfort for the French position here.
Our other stories are on Podemos economic programme; on what the Catalan informal poll means for Mas, and its legal consequences; on the troika’s concern over Ireland’s new proposal for a flat rate water charge; on the latest Markit indicator reading; on the decision of Commerzbank to charge negative interest rates on large deposits and the ensuing scathing criticism in the German press; on two more investment fund proposals from Alde and the Socialists; and on an analysis of the contagion risk between banks in Europe.