Just a few days have passed since an official report by the Directorate General for Economics and Finance Affairs of the European Commission told the world that French economy is stagnating, and the second economic power of the Eurozone is still under the spotlight.
It’s time for the Bundesbank to raise the voice against – or, well, just towards – l’Hexagone and to raise the pressure around its Ministry of Finance. All of German fears are, as usual, concerning flexibility in applying the European Union’s budget rules. Jens Weidmann, the Bundesbank president, criticised last weekend the EU’s decision to give France extra time in order to sort out its budget and fix its excessive public debit. What Mr. Weidmann fears and basically claims is that such decision would damage the credibility of the bloc’s budget rules.
In his recent statement to Le Figaro, it is clear that what he – and Germany – wants to avoid mostly is giving the impression that EU rules are to negotiate. “I would have hoped for clearer decisions”, the head of the German central bank said. “It would be unfortunate if the impression set in that rules are in the end up for negotiation and that budgetary consolidation can be perpetually put off by national governments”, he added.
Mr. Weidmann’s saying came right after global rating agency Fitch downgraded France’s credit rating from AA+ to AA, last Friday, citing its failure to get a grip on its deficit. “The weak outlook for the French economy impairs the prospects for fiscal consolidation and stabilizing the public debt ratio,” Fitch said, cold and clear as it is. The agency also cited predictions on French economy for the year 2015, which say that it will experience lower growth than the Eurozone average “for the first time in four years”.
France recently reduced its forecast for 2015 to 4.1 per cent of GDP from 4.3 per cent, still well above the 3% EU target. Despite this really-not-encouraging signal, at the end of November, the European Commission gave France an extra three months to implement reforms to shrink its budget deficit. And this way comes Mr. Weidmann’s warning. “France announced that it will not reach the agreed deficit goal in 2015 and has clearly put back the envisaged correction of its excessive deficit. For me, that does not strengthen the credibility of EU rules”, he said in his interview to Le Figaro.
A matter of credibility then, as Mr. Weidmann says, and probably a matter of equality in applying rules too. The question on whether the Commission is being too mild with France, as it is the second economy of the Eurozone and historically a country with enormous political power is actually hot. During a recent interview with a Greek newspaper, European Economic and Financial Affairs Commissioner and former Minister of Finance in France Pierre Moscovici has been challenged on the same topic.
When asked if there would be any particular leniency towards France (and maybe not towards countries like Greece), he stressed that equality needs to be guaranteed at all times. “Everybody has to apply the rules, there is no small country, big country, no huge power or a country that can be neglected here”, he said. “The rules have to be applied”, he added. During the same interview, Mr. Moscovici was also asked about France’s credibility in the task of correcting numbers in only three months, after three years have passed. “They probably won’t correct the numbers but they have to show very precisely what structural efforts were made, what reforms are on the table and what kind of macroeconomic impact they can produce”, he told the interviewer. “After that you have some flexibility”, he also declared.
Flexibility, again, sounds like the keyword for the bloc’s future. More broadly, we have countries like Italy on the one hand, with Prime Minister Matteo Renzi calling for Europe-wide pro-growth policies as the solution to cut heavy debts, and France, of course on the other, with officials saying that Europe has to shift away from austerity and stop forcing deficit targets and austerity in a period of low growth and low inflation. Something Mr. Weidmann’s probably will never accept.
The Bundesbank president has always been very harsh on the European Central Bank’s decision to buy private-sector bonds. Just a few months ago he took a hard line against new stimulus just before high-level International Monetary Fund meetings, chastising France for budgetary laxness. He repeated often his fierce opposition to the idea of having the ECB purchasing government bonds, and he also happened to argue with ECB’s president Mario Draghi on this matter.
He also allegedly made the French Finance Minister, Michel Sapin, react angrily to reports that the Commission was preparing to reject France’s 2015 budget; especially because Mr. Weidmann was reportedly very supportive of such measure.
“France needs to serve as a role model”, BuBa’s president used to say in the past.