Daily Israel Report

EU Commission Gives France Polite Warning About Deficit Control

Feeling its way with the new French president, the EU reminds France that its obligations remain in force.
By Amiel Ungar
First Publish: 6/1/2012, 5:07 AM

Francois Hollande
Francois Hollande
Reuters

The European Commission, whose job includes enforcing EU decisions on member countries, is in a delicate position with respect to France. Newly elected president Francois Hollande is in the midst of his electoral honeymoon and enjoying a 61% favorability rating.

His growth message is seeping through the European  Union and maybe helping in places like Ireland (which voted today on a referendum) and Greece, by tempering the austerity message with hopes for growth.

However, as part of the stability pact that France signed under the former government, France is committed to bringing down the deficit to 3%. While France and Germany have enjoyed some favoritism in the past as senior members of the European Union, it is hard to justify deference on the issue when similar prodding of the Dutch government led to its collapse and forced new elections in the Netherlands.

The Commission, in reviewing the French economy, gave the French government a slight nudge by prodding it to make "additional efforts" to reach the 3% limit.

It also politely questioned the new French government's plan to re-institute retirement at 60 - provided the person began work at the age of 18. The Commission hinted that the new government's expectations that it would be able to cover the added cost of €5 billion were perhaps based "on overly optimistic projections of growth and employment."

The commission predicts that French growth will contract to 0.5% in 2012 down from 1.7% in 2011.

When dealing with the general problems of the French market, the Commission assailed the compartmentalization of the French labor market and its lack of flexibility. France, it said, was also suffering from a lack of competitiveness.

The French government's reaction to the critical report was essentially to lay the problems at the doorstep of its predecessor and argue that the report represented an assessment of that government's policies.

The Socialist government is promising an audit of the nation's finances that will be revealed after the June legislative elections. There has already been speculation that the new government will use this audit to climb down from its election pledges.

In one area, the government is continuing to economize by setting a ceiling to mammoth salaries. After cutting the salaries of ministers, the government is capping the salaries of executives in state corporations.