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The rules say that EU countries should have budget deficits below 3% of GDP and public debt below 60% of GDP.
The rules say that EU countries should have budget deficits below 3% of GDP and public debt below 60% of GDP.

6 Eurozone States Risk Breaking Deficit Rules

Emmanuel Macron’s first budget as French president risks running foul of EU spending rules in an embarrassment for the new government which has vowed to meet Brussels targets in its first year in office

6 Eurozone States Risk Breaking Deficit Rules

National budgets of six eurozone countries may break the European Union’s budget deficit rules next year, the European Commission said on Wednesday, with Italy, France and Belgium also failing to cut public debt in line with EU requirements.

The commission analyzed draft 2018 budget plans of all the eurozone states, except Greece, which is under a bailout program, to check if their main assumptions are in line with EU rules that set limits on budget deficits and public debt, Reuters reported.

It said that Germany, Lithuania, Latvia, Luxembourg, Finland the Netherlands as well as Estonia, Ireland, Cyprus, Malta, and Slovakia were either fully or broadly compliant with the rules, called the Stability and Growth Pact.

“For... Belgium, Italy, Austria, Portugal and Slovenia, the Draft Budgetary Plans pose a risk of noncompliance with the requirements for 2018 under the SGP,” the commission said, adding France was also in the same group.

The rules say that EU countries should have budget deficits below 3% of GDP and public debt below 60% of GDP. They should also seek to reach budget balance or surplus in structural terms—which exclude business cycle swings and one-off spending and revenue—and cut debt each year to bring it below the 60% threshold if it is higher.

France, Italy Not Doing Enough

The commission said France, Belgium and Italy were not reducing their debt at the pace required by EU rules, but singled out Italy, which has the second highest debt in the EU after Greece at more than 130% of GDP, to voice concern.

Italy’s public debt is set to increase to 132.1%, and France’s spending plan suggests “a significant deviation” from its fiscal target.

“In the case of Italy, the persisting high government debt is a reason of concern,” the commission said. “The commission intends to reassess Italy’s compliance with the debt reduction benchmark in spring 2018,” it said.

The commission said that it would review Italy’s compliance with the debt-cutting requirements in spring 2018. Italy faces elections next year, which have to be called by May.

France, which has been breaking EU budget deficit limits for 10 years, may bring the shortfall below 3% this year as required, but could break the rules again next year by not cutting its structural deficit enough in 2018, it said.

France’s spending plan, meanwhile, suggests “a significant deviation” from its fiscal targets that the commission has demanded of the country.

Emmanuel Macron’s first budget as French president risks running foul of EU spending rules in an embarrassment for the new government which has vowed to meet Brussels targets in its first year in office.

In his election campaign, Macron vowed to reduce France’s budget deficit below the 3% EU ceiling this year–the first time that would have happened in 12 years. The deficit stood at 3.4% of GDP last year.

The commission forecasts France’s deficit will shrink to 2.9% in 2017 and 2018 but then rise again to 3% in 2019. Despite the headline deficit figure going down, Brussels is worried Paris is still not doing enough belt-tightening to meet its medium term structural deficit target which takes into account movements in the economic cycle. France is also the only country in the eurozone whose debt to GDP ratio will rise over the next two years to 96.9%.

Risk of Non-Compliance

“The budget presents a risk of non-compliance with the requirements of the pact concerning the structural deficit”, said Pierre Moscovici, EU commissioner for economic affairs. Brussels saw “a significant gap compared with the requirement for adjustment, and also has questions on the non-respect of the debt criterion in 2018?, he said.

Italy and France will be among the slowest growing economies in the eurozone over the next two years, according to commission forecasts, heaping pressure on their public finances at a time when the rest of the bloc is enjoying its best period of growth since 2010.

Other issues flagged in the assessments include Romania’s failure to take “effective action” to rein in its deficit, which is expected to break the EU’s 3% limit in 2018 and continue increasing in 2019. The setback potentially damages the country’s medium-term ambitions to join the euro.

The commission unveiled the chief offenders in its “European Semester Autumn Package,” which the institution uses as a platform to announce how compliant EU countries are with the bloc’s fiscal rules.

 

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