As the election campaign heats up, EU asks France to reduce its spending

Brussels will demand that the new French government cut spending or increase taxes by billions of dollars this year. The hard-right is vying to win in upcoming parliamentary elections.

The European Commission has reprimanded France, the country with the second largest economy in the Eurozone behind Germany, for the first-time for exceeding its budgetary limitations, with a deficit of 5.5% of GDP.

This breach puts Brussels at risk of a collision with Marine Le Pen’s National Rally in France, a hard-right populist party that has promised fiscal easing if it wins the majority during elections scheduled for June 30 and July 7

Commission, under its procedure for excessive deficits, will present a plan to reduce the deficit in the fall, months after a hard-right government could be elected by the National Assembly of France. The governing centre-right party of Emmanuel Macron is in third position in the opinion polls, behind an alliance of leftist parties and the Rally. It had pledged to cut spending by €20 billion a yearly.

Brussels said it would require French authorities to spend at least €15 billion annually, or a minimum of 0.5 percent fiscal consolidate, on the French economy. This could rise once the French government presents its plans for repairing the public finances.

Paolo Gentiloni said that the EU’s Economic Commissioner, Paolo Gentiloni stated the budgetary reprimand “was not a surprise”. It was long communicated to the French Government after a review of its public finances raised the deficit in 2022 from 4.8%.

The EU sets a 3 percent deficit limit for its members. The budgetary rules were suspended during the pandemic of coronavirus and have now been reinstated for the first time.

Paolo Gentiloni is the EU’s Economic Commissioner. He says that Brussels cannot get involved in a debate about spending during an election campaign.

Gentiloni stated that “we are not in a position where we can have a debate about different proposals during an election campaign.” We will discuss this over the next few months, and I am confident that it will be a useful discussion with a positive conclusion.

Investors sold euro, French government bonds and French equities over fears of a populist government who would exacerbate France’s fiscal trajectory. The deficit has already risen to be the second-largest in the eurozone behind Italy. Analysts at BNP Paribas France’s largest bank believe that markets are more likely welcome an impasse where no party can gain a majority, and a technocratic administration may be needed.

In its manifesto for 2022, the Rally proposed measures like lowering the retirement to 60 years old and exempting certain younger people from paying income tax. Jordan Bardella said, however, that the party will not make any budgetary proposals until they have analysed the finances of the country. The new government must present its budget plan for the next year in autumn.

Le Pen, who no longer campaigns for the EU to abandon the euro, criticised the EU budgetary rules as imposing a tightrope on spending. Brussels can fine member states for continuing to violate the rules, but it has not done so yet.

It was opened to Italy, Malta and Slovakia as well as Belgium, Hungary, Poland, and Belgium.