FRENCH BUDGET AND THE RULES OF THE GAME

In order to improve coordination and surveillance at the euro area-level, all euro area Member States submit by mid-October their draft budgetary plans containing a detailed presentation of the planned budget for the forthcoming year. The Commission examines and provides an opinion on each of the plans; in case of severe non-compliance of a plan with the obligations under Stability and Growth Pact, the Commission may request that a revised plan be submitted. This exercise means that the Commission provides an independent assessment of each Member State's budgetary plan before it becomes law. For the euro area as a whole, it provides a comprehensive overview of the budgetary outlook for the forthcoming year, which will allow discussions to take place on that basis.

As this coordinated assessment falls during the second half of the calendar year, the Autumn exercise provides an opportunity for Member States to incorporate recommendations from the current year's European Semester into draft national budgets and provides an important milestone to assess whether the orientations contained in the stability programmes and assessed by the European Commission and the Council during the European Semester have been translated into concrete plans.

Rules of the Game

1. European Member States should be treated equally when assessing budgets
2. No deal should be allowed to take place giving France favourable treatment outside of the region's fiscal rules. Other Member countries, in particular those who have experienced painful austerity, such as Portugal insist not to bend the rules for the benefit of the largest economies in the euro zone.
3. France, like all other countries in the EU, should be treated equally by the European Commission when interpreting the legal flexibility that exists within the Stability Pact.

Commission Review

France’s budget is quite far from the goal, both in terms of nominal deficit and effective measures, concerning the structural deficit and the number and the quality of the reforms that must be carried out.

The European Commission may demand additional economic overhauls or spending cuts. During the assessment process, the European Commission can point out elements that aren't compliant with EU rules and even send the entire budget back to Paris to ask for a do-over.

The European Commission also wishes for France to show commitments regarding reforms of the labour market, pensions and the functioning of the French administration. A correction of the budget and a commitment on reforms would start the discussion on best basis for any additional period of two years to reduce the French public deficit to 3% of the GDP but if Paris does not modify anything, the new Commission will be confronted in November with the need to initiate the excessive deficit procedure which can lead to financial penalties.