EU to give France more time to cut deficit for the third time

European Union finance ministers will give France two more years on Tuesday to cut its budget deficit to within EU limits, extending the deadline for the third time since 2009 as Paris struggles to enact reforms.

The euro zone’s second biggest economy has repeatedly missed deadlines and budget consolidation targets and, under EU budget rules sharpened during the sovereign debt crisis, was facing fines of up to €4 billion by late last year.

But the European Commission, which prepares the ministers' decision, recommended an extension of the deadline to 2017 from 2015 to give Paris more time implement reforms and cut spending at a time of weak economic growth and low inflation.

That sparked controversy among some smaller euro zone countries and within the Commission itself, because many policy-makers saw it as undermining the credibility of the rules set out in the EU’s Stability and Growth Pact.

But the euro zone's economic powerhouse Germany is quietly backing the lenient approach to France so as not to further weaken already unpopular French president Francois Hollande.

The recommendation was initially discussed at a meeting of euro zone finance ministers on Monday, where it triggered a discussion on the application of EU budget rules, and will be formally approved by all 28 EU ministers on Tuesday.

"There was a general debate in which some remarks were made about strictness and flexibility, not specifically regarding any country, but more in general terms in which some countries said there should be less flexibility and others said there should be more flexibility," said the chairman of Monday's talks, Jeroen Dijsselbloem.

In a statement on Monday, the euro zone finance ministers said France must do more to comply with the rules and that they expect Paris to deliver on a promise to cut its structural deficit by an additional 0.2 per cent of GDP in 2015.

That would take the overall reduction this year in the structural deficit, which strips out the effects of the economic cycle, to the minimum 0.5 per cent required by the EU.

French finance minister Michel Sapin, speaking to reporters, reiterated France's commitment to meet this year's structural deficit target and to take more measures to do so, blaming the below-target consolidation so far on very low inflation.

Reuters