BRUSSELS – The European Union head office is opting not to sanction two of its biggest economies just yet for missing public finance targets and instead will give France and Italy until the spring to bring their debts and deficits in line.
Paris and Rome have been accused of being too profligate in their budgetary spending plans at a time when the EU and the 18-country eurozone have been advocating strict austerity as the best way to get their public finances into shape.
“We will decide in early March whether any further steps are necessary,” said EU Economic and Financial Affairs Commissioner Pierre Moscovici as he stepped away from imposing immediate sanctions on two of the three biggest economies in the eurozone.
Since eurozone nations are tied through their currency there is a need for overall controls since wayward economic policies in one nation could pull the whole currency zone down.
The Commission insisted the extension would not allow laggard countries to get away with wayward spending and that they had to push through structural reforms.
“We will see to it that France and Italy push through important reforms over the next months,” Commission President Jean-Claude Juncker said in newspaper interviews. “Otherwise we lose our credibility.”
The speed at which countries bring their budget deficits down is a matter of debate in Europe. Some policymakers think spending shouldn’t be cut too quickly in order to spur growth.
Even Germany, the economic engine of Europe, came in for criticism as it is deemed too hesitant in boosting public spending despite favourable financial circumstances.
“The sizeable fiscal space, the investment needs and the very low interest rates, which imply that the social returns largely outweigh the borrowing costs, leave scope to boost public investment,” the Commission said of Germany’s situation.
If only countries like France and Italy had such options.
Emblematic of the difficulties it faces, Italy on Friday reported that unemployment rose to a historic high of 13.2 per cent in October, up 0.3 percentage points from the previous month.
Though the Italian budget will respect the EU deficit limit of 3 per cent of GDP, its overall debt is extremely high and Rome has said it will delay balancing the budget until 2017.
France has a 21 billion-euro ($33 billion) cost-cutting plan for next year and announced an extra 3.6 billion euros on Monday to appease the EU head office. Even then, the country is expected to see a deficit of 4.3 per cent of GDP next year.
The EU head office is under heavy pressure to enforce the rules, especially when two of the larger euro economies threaten to flout them. Working with a strict austerity template, it wants to keep member states from building up huge debts of the kind that plunged the region into a crisis five years ago.
AP Business Writer Colleen Barry contributed to this report from Milan.
Raf Casert can be followed on Twitter at http://www.twitter.com/rcasert