France Rewarded for Reforms, Gets More Time to Cut Spending

European finance ministers allow France two more years to bring its deficit in line with the bloc’s fiscal rules.

French finance minister Michel Sapin arrives for a meeting at the Elysée Palace in Paris, January 17, 2013
French finance minister Michel Sapin arrives for a meeting at the Elysée Palace in Paris, January 17, 2013 (PS/Mathieu Delmestre)

Other European Union countries rewarded France on Tuesday for the liberal economic reforms it enacted last month by giving the bloc’s second largest economy another two years to bring its deficit under the 3 percent treaty limit.

Some eurozone countries, including Ireland, complained that bigger countries were given reprieve when they were not allowed more time to reduce their shortfalls.

However, a joint statement from finance ministers said the extension was justified by the “fiscal effort made by France since 2013 and by the current weak economic conditions.”

Growth has been under 1 percent annually since the Socialist Party’s François Hollande was elected president in 2012. Unemployment has remained virtually unchanged at 10 percent since.

Despite what Hollande’s administration describes as an “unprecedented” €50 billion in spending reductions due to happen before his term expires in 2017, public-sector spending is still projected to rise .2 percent over the same period and account for more than half of gross domestic product.

This is the fourth time since the beginning of the European sovereign debt crisis that France has been given more time to cut spending.

In October, the country announced it would break an agreement with Brussels to bring its deficit under 3 percent of economic output. Economy minister Emmanuel Macron promised substantive economic reforms at the same time, hoping they would buy France more time.

Last month, Hollande used emergency powers allowed under the Constitution to ram through Macron’s reforms that allow businesses to operate on more Sundays, shorten labor arbitration procedures and open up protected professions such as pharmacists and notaries.

The European Commission had urged France for many years to relax labor laws and altogether improve the ease of doing business.

The measures came on top of tax cuts worth €40 billion by 2017 that should help companies reduce labor costs.

Labor costs in France, at €34 per hour, far exceed the European average of €23.