The new European commission has shied from penalising eurozone countries, notably France and Italy, for being in breach of the single currency rulebook, and has given Paris and Rome until next spring to deliver on their pledges of sweeping changes to their labour markets and other structural reforms.
“As a new commission, we’re not seeing it as a priority to punish countries,” said Valdis Dombrovskis of Latvia, its new vice-president in charge of the euro.
Armed with new powers to scrutinise eurozone draft budgets in advance, dictate changes and punish recalcitrants, the commission said seven of 16 countries being assessed were at risk of breaking the stability and growth pact.
Of those, France, Italy and Belgium were the most serious sinners: France because of its persistent inability to get its budget deficit to within 3% of GDP; Italy and Belgium because of soaring public debt levels well beyond the 60% of GDP limit.
All three countries have written to Brussels promising to do more to comply with the rules. Less than a month into the tenure of the five-year commission under Jean-Claude Juncker, Brussels decided to give the three countries the benefit of the doubt.
Dombrovskis made it plain that France was the major worry. It has twice been given leeway to get its spending within the eurozone’s limits, but now says it will not succeed until 2017.
“All options are on the table,” said Dombrovskis. “France is not meeting the targets for deficit reduction … But given the commitment of the countries, the European commission opinion is to give those countries more time to implement their structural reforms.”
He singled out reforms of labour markets and closed professions systems, shifting taxation from labour to consumption and freeing up markets in goods and services.
By March or April, he said, the commission would be scrutinising France’s 2014 budget performance, not on the basis of estimates or forecasts but on actual data. Germany was judged to be compliant with the stability pact, but Dombrovskis also said that the commission was urging Berlin to do more to boost recovery prospects in the EU by stimulating demand, pointing critically to a 6% current account surplus this year.
“The information available so far indicates that France has not taken effective action for 2014 at this stage,” said the commission. “France has made limited progress with regard to the structural part of the fiscal recommendations issued in … 2014.”
“We will decide in early March whether any further steps are necessary,” said the commissioner for economic affairs, Pierre Moscovici, who was France’s finance minister until earlier this year.
The aggregate deficit for the eurozone, minus Greece and Cyprus, which are in bailouts, has fallen within the 3% limit this year for the first time since the financial crisis.
Dombrovskis said that all 28 EU economies will register growth next year for the first time since the recession.