Expect EU to finally fine a far-right France
France has always been too big, too powerful, and ― most crucially of all ― too much a part of the cozy EU establishment to be fined for its financial sins. But the party might be over. As the European Commission prepares to name and shame the latest batch of governments that have flouted budget rules, France’s easy ride no longer looks sustainable. The EU’s top brass is under pressure from across the bloc to finally crack down on the budget bad boy and set the country on a course that could ultimately see it penalized. The prospect of Marine Le Pen’s far-right National Rally (RN) forming a government in Paris after President Emmanuel Macron called a snap election has changed everything. It has sent a shudder through the EU’s bureaucracy in Brussels ― and in Frankfurt, the seat of the European Central Bank ― officials have told POLITICO.
By Bjarke Smith-Meyer, Gregorio Sorgi, and
Giorgio Leali
Reporters
After all, it’s one thing to let off a pro-EU, statesmanlike leader for the type of reckless spending that endangers the economic stability of the eurozone. It’s quite another if it’s carried out brazenly by a nationalist firebrand who doesn’t think the rules are worth the paper they’re written on in the first place.
“If an irresponsible [French spending] plan was put on the table, and the Commission said ‘no problem,’ then the whole fiscal framework is lost,” said Zsolt Darvas, a senior fellow at Brussels’ influential think tank Bruegel, referring to the way the EU’s executive arm gets to run the rule over governments’ budgets. “Other populist parties would forever disregard the rules.”
In the old days, the European elite could afford to be candid about how much slack it allowed France. It was Jean-Claude Juncker, the previous Commission president, who eight years ago explained why Europe’s budget cops had turned a blind eye to France’s poor public finances. “Parce que c’est la France,” he said. Simple as that.
(The fact that Juncker’s economy commissioner was French might have helped too.)
Eye-watering
France’s economy under Macron is little better than in those days.
His government has already pledged budget cuts worth about €20 billion to bring down a budget deficit ― the difference between annual spending and income ― which reached 5.5 percent of GDP last year. France’s public debt is forecast to climb to 114 percent of GDP in 2025.
Those are eye-watering figures: EU rules force countries to have, or at least work toward, annual deficits of three percent and debt at 60 percent.
France is among a dozen countries that will receive a red flag for breaching the bloc’s deficit threshold. This will put them into what’s called an “excessive deficit procedure,” which requires governments to take action to rein in their spending ― and to set out in detail how they’re going to do it. It’s a typically drawn-out EU process that can take years but ultimately, they could be fined.
And the trouble is, the economic plans of National Rally, if it takes power, could make the figures worse not better.
“Someone can always promise the Moon,” Macron’s finance minister, Bruno Le Maire, told France Info. “They [National Rally] couldn’t care less about public money.”
The party has campaigned on a program that mixes tax cuts and protectionism and ― although prospective prime minister, 28-year-old Jordan Bardella, appeared to row back on it in recent days ― undoing Macron’s pension reforms and lowering the retirement age to 60 for some workers. That would detonate a bomb under the country’s public purse, as the average age of the population increases.
“If RN implements its fiscal policies, then there’s no chance it can follow the [EU] fiscal rules, and if it doesn’t follow the fiscal rules, then the Commission will have to follow the [excessive deficit] procedure,” said Nils Redeker, deputy director of the Jacques Delors Institute, a Paris-based think tank. If the party followed through with its plans “the economic damage could be quite big”.
Losing trust
But the markets are already jittery. The French stock market suffered its worst week in more than two years. In the days before Macron’s election announcement, a credit-rating agency downgraded the country over the cost of servicing its debt ― a sign of failing confidence.
And it comes at a time when the Brussels bureaucracy is at its most vulnerable. Following the European Parliament election, the EU must decide whether Ursula von der Leyen remains president of the Commission, and then she, or whoever replaces her, must name new commissioners.
“The quickest way for von der Leyen to lose the trust of the smaller member states before she’s even nominated for a second term is by letting large member states, like France and Italy, off the hook under the new fiscal rules,” one diplomat from a northern European country said on condition of anonymity.
The whole point of the rules is to avoid the contagion effects of massive debt that almost toppled Greece at the start of the 2010s and was in danger of ripping apart the whole currency area.
The crunch point won’t come this week. That’s more likely in the fall when countries have to present roadmaps for how they’re going to reduce their debts and deficits, by which time France will have a new government.
Backroom deals
This is the first test for the EU’s reformed spending rules, which were suspended since the Covid pandemic. They came back into force this year, and governments are under pressure to toe the line.
In the days of Juncker’s infamous quote, the deal-making that resulted in France escaping a fine was less than transparent. Officials say there is no longer appetite for such backroom negotiation.
This is even more the case because northern governments negotiated strict deficit and debt safeguards into the reforms to ensure countries are kept in check and continue to be ― at least theoretically ― punished with fines if they go astray.
Markets first,
Commission second
This could all be moot. Financial markets might have their say before the Commission even gets a chance. National Rally would be wise to see the mess that followed the spending plan presented by then-UK Prime Minister Liz Truss two years ago — which included huge tax cuts, sent markets into a tailspin, and resulted in her almost-immediate downfall.
“If it happened in the UK, then it could happen in France,” Bruegel’s Darvas said.
Or, as Redeker from the Jacques Delors Institute put it: “What the Commission does is probably of secondary importance.”
“The reaction of markets might have a more immediate impact than the EU’s fiscal rules.”
The article first appeared on
POLITICO.