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20.11.2019 Europe

EU warns France against overspending in 2020 budget

Reuters/Francois Lenoir
NOV 20, 2019 EUROPE

The European Union has listed France among eight countries at risk of breaching the bloc's public spending rules next year. In Paris' case, the warning has less to do with a shrinking deficit than a growing public debt.

According to EU fiscal rules for the 19 countries using the euro currency, eight member states were reporting draft budgets looking to exceed deficit limits of 3 percent of GDP and overall debt limits of 60 percent.

“For Belgium, Spain, France, Italy, Portugal, Slovenia, Slovakia and Finland the Draft Budgetary Plans pose a risk of non-compliance with the Stability and Growth Pact in 2020,” the bloc's governing body, the European Commission, said in a statement.

France is projecting a 3.1 percent of GDP deficit this year – making it the only eurozone country in breach of the limit – but its current draft budget projects 2.2 percent next year.

The bigger concern is France's debt, which is expected to reach 98.9 percent of GDP at the end of 2020.

The bloc's governing body, the European Commission, has also warned that France, along with Italy, Belgium and Spain, should do more to take advantage of a favourable economic climate to carry out structural adjustments.

Namely, the bloc wants member states to do more to reduce long-term costs such as pensions and make it easier to hire and fire workers.

No legal procedures
The Commission did not, however, request any immediate changes to France's draft budget, nor to those of any of the other seven countries.

“We are not saying that it has to be done immediately,” said Commission Vice President Valdis Dombrovskis, warning that high debt made it difficult “to respond to economic shocks and market pressures”.

The EU's governing body also highlighted it was the first time since 2002 that it was not taking legal action against member states under its disciplinary excessive deficit procedure.

But the warning has alerted the eight countries that are in the crosshairs. Last year, for the first time, the Commission rejected a national budget – that of Italy, whose debt is expected to reach 136.8 percent of GDP at the end of 2020 and continue to climb in the two years to follow.