Brussels upset by anti-austerity France

Paris set for battle over failure to meet deficit targets set by European Commission

France is becoming embroiled in an increasingly fractious battle with Brussels over its failure to meet deficit targets set by the European Commission (EC), a little over a week before Paris must submit its 2015 budget to the commission for clearance.

It follows a report in yesterday's Wall Street Journal which claimed the EC was preparing to reject France's budget.

An EC spokesman said yesterday it was “entirely premature” to speculate on the opinion the commission will issue, but EU officials said yesterday there is increasing alarm over France’s consistent failure to meet its targets under the Stability and Growth Pact. Last week, the government in Paris defied Brussels by unveiling a budget that “rejects austerity”, according to the budget statement. That will see France miss its target to get its deficit below 3 per cent by another two years.

The Wall Street Journal report appeared on the same day that French finance minister Michael Sapin told the Financial Times Europe should change its economic policy and ease the pressure on deficit reduction, staunchly defending France's economic model.

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Any move by the commission to veto France’s budget would represent a serious escalation of tension between the EU’s executive arm and the euro zone’s second-largest economy.

All non-programme euro zone countries got the green light from Brussels last year; the first time “two-pack” and “six-pack” rules came into effect.

France's fiscal record will come under scrutiny today when former French finance and economic minister Pierre Moscovici appears before the European Parliament committee on economic and monetary affairs for the second time in a week. Mr Moscovici, nominated as the EU's next economic commissioner, failed to gain the support of MEPs last Thursday at his hearing, and given 22 more questions by MEPs.

Stimulus programme

Meanwhile, it has emerged that incoming EC president Jean-Claude Juncker is sounding out EU leaders on tapping the ESM bailout fund to finance a €300 billion stimulus programme for struggling EU economies.

According to Der Spiegel, Mr Juncker does not want to follow standard Brussels practice and rededicate already committed EU funds yet to be drawn down by member states. He wants fresh money, managed by the European Investment Bank (EIB), to give extra support for states needing stimulus measures.

One source of financing, says the report, is the ESM with its €500 billion, of which only around €49 billion has been drawn down by Spain and Cyprus. The Juncker proposal reportedly foresees the ESM fund providing about €100 billion in fresh capital for member states, a capital injection that would not drive up sovereign debt.

Mr Juncker has reportedly secured support for his plan from two key German players: Werner Hoyer, head of the EIB, and ESM chief Klaus Regling,

However, the plan has prompted Berliners to dub him the “Long-fingered Luxembourger”. When Mr Regling and Mr Hoyer outlined the plan in Berlin last month, they were reportedly told to “forget it”.

‘Absurd and wrong’

"ESM funds are there not to be used," finance minister Wolfgang Dr Schäuble said, according to Der Spiegel.

Officials close to Chancellor Angela Merkel agree with Dr Schäuble that the proposal is “absurd and wrong”. A senior EU official in Brussels said the idea was unlikely to be discussed at next week’s euro group meeting, as there was no “concrete proposal”.

Suzanne Lynch

Suzanne Lynch

Suzanne Lynch, a former Irish Times journalist, was Washington correspondent and, before that, Europe correspondent

Derek Scally

Derek Scally

Derek Scally is an Irish Times journalist based in Berlin