Michel Sapin, French finance minister, tried to exploit very depressing economic forecasts for the eurozone on Tuesday, November 4, published by the European Commission, to win over his European counterparts, meeting on Thursday, November 6, and Friday, November 7 in Brussels, and make them admit that France delays the payback of its public deficit to 3% of gross domestic product (GDP).
If the positions of the partners of Paris have not really shifted on Thursday during a meeting of finance ministers of the euro area (Eurogroup) – there was no question of “changing the rules in the middle of a game” – a willingness to adapt the European response to the situation was nevertheless manifested.
In addition to German gesture on extra public investment, Europeans have advanced a little on the idea of a “package” to better coordinate fiscal and monetary policies, the reform agenda and the recovery plan of 300 billion euros proposed by the Commission President, Jean-Claude Juncker.
More concrete announcements on a new agenda could be made on December 8, at the next meeting of the Eurogroup.
For weeks – since July – Mr. Sapin, when travelling to Brussels, tried to convince his European partners that given the economic climate, they should “change the software” and review of European policies focused on budgetary discipline.
The invitation of Paris to consider the “exceptional circumstances” of the economy has been strengthened by the bad economic climate figures published in recent days,
According to the Commission, the increase in gross domestic product (GDP) in the euro zone should be only 1.1% in 2015 and 1.7% in 2016.
It confirmed after IMF forecasts and the OECD outputs a few weeks earlier that the Eurozone is lagging behind the most advanced economies in the world.
For France, Brussels will provide an increase of as little as 0.7% of GDP in 2015, against 1% expected by Paris.
Germany, so far the only economic engine of the area, is expected to slow significantly, they believe in Brussels, with mere 1.1% growth in 2015.
Paris reiterates its request for flexibility in the implementation of the Stability Pact
“In this context, the budget issue is forced but secondary. The main issue is economic: is that the Eurozone is doomed to become an exception in a sustainable manner, with low inflation and low growth?” Notes Mr. Sapin, interviewed on Thursday on the sidelines of the Eurogroup.
Paris calls for a more flexible application of the Pact of Stability and Growth – with its goal of a public deficit and less than 3% debt and 60% of GDP – and better coordination of economic policies in the euro area.
“The goal is to increase the growth potential of the euro area. For this, it is necessary to reform and adapt the pace of deficit reduction elsewhere. I’m not talking about time, pace is the word I use from in the first place. I do not say this because we have a particular problem, but because it seems to be good reasoning for the European Union.”
Making structural reforms, agreed, but in a context of very low growth, the positive effects for citizens may be nullified, argues the French government.
It is important that countries that have a balanced budget – like Germany – contribute to the implementation of these reforms in neighboring countries, reviving their investments to inject some growth into the engine.
Europeans do not “want to change the rules in the middle of play”
So far, at least oficially, and with the exception of the Italians, the European partners have not changed their decision one iota.
In Germany, Wolfgang Schäuble, the finance minister, retains the target of a balanced budget in 2015, a “null schwartz” who has a general support in the country, including that of the social democrats.
The positions of Paris partners have not altered either during the Eurogroup on Thursday. A few weeks (no later than the end of November), Brussels will speak out for its opinion on the draft budget for 2015 for the Eurozone countries. All the participants are unanimous: they must respect the Stability Pact and growth.
It remains a “critical” element of trust in the Eurozone, according to Jeroen Dijsselbloem, President of the Eurogroup, who said on Thursday: “We will not change the rules mid-game,” referring to consideration by the Committee on budget proposals, still ongoing.
In late October, Paris narrowly escaped an outright rejection of its script, pledging $3.6 billion of additional savings, but, according to the Economic Commission forecasts, France still shows a deficit of 4 7% of GDP in 2016.
A willingness to adapt the European response to the situation occurs
On the draft budget 2015, Pierre Moscovici, the new Commissioner of the economy, noted that “the review should take account of differences of opinion on the forecast,” referring to the fact that the growth assumptions in the Commission strongly differ from those on which many countries, starting with France, relied to establish their proposed budgets.
“We will use all the flexibilities provided by law. We have the ability to make subtle decisions, not binary, “added Mr. Moscovici.
Another sign of openness: the Germans announced on Thursday their will to invest 10 billion euros of additional public money between 2016 and 2018.
“It’s a small step, but it’s the first one. The French have made efforts [by announcing additional spending cuts of 3.6 billion euros in late October], the Germans also made a gesture,” said a source in Germany.
Finally, the idea to better coordinate fiscal, monetary policies, the reform agenda and the stimulus of 300 billion euros proposed by the Commission Chairman, Jean-Claude Juncker, found their way.
This principle of a “package”, defended by Mr. Sapin and his main partners of the Eurogroup, was discussed on Thursday. Mario Draghi, the ECB president, on his part stressed the “urgency” to act, and to better coordinate, according to a European source.