The executive arm of the European Union scolded France on Wednesday for taking on too much debt. This came at a time when President Emmanuel Macron is facing strong opposition from both the far right and the left in the election campaign.
The EU Commission told seven countries, including France, to begin what is known as a “excessive deficit procedure.” This is the first step in a long process that must be completed before any member state can be squished and forced to make changes.
EU Commission Vice President Valdis Dombrovskis said, “Deficit criteria is not met in seven of our member states.” He named France, Belgium, Italy, Hungary, Malta, Slovakia, and Poland as the countries in question.
Spreads on 10-year French government bonds BX:TMBMKFR-10Y vs. similar maturity have grown because of worries about France’s finances, especially since elections are coming up. German BX:TMBMKDE-10Y bonds and the value of the euro with a drop of 0.27%.
The European Central Bank can’t use its transmission protection instrument tool to buy bonds from countries that have to follow rules about having too much of a deficit.
“Realistically, though, since the recommendations won’t come until November, it doesn’t look like any country will be found not to have followed them (or not taken “effective action,” in EC speak) before at least next spring,” said Fabio Balboni, senior economist for the eurozone at HSBC.
For many years, the EU has told its member states that they need to keep their annual deficits and total debts below 3% and 60% of their respective GDPs, respectively. Those goals have been ignored when it was convenient, sometimes even by the bloc’s largest economies, like Germany and France.
France had a deficit of more than 5% of its GDP last year.
In the past few years, there were times when exceptions were made, like during the COVID-19 crisis and the war in Ukraine. But that is no longer the case.
Still, Macron called early elections after losing to Marine Le Pen on the far right in the EU parliamentary elections on June 9. Wednesday’s announcement made people in France very angry.
There are polls that show that Le Pen’s National Rally and a new united left front are doing better than Macron’s party. Both of these parties have plans that include deficit spending to get the economy out of its rut.
Some economists pointed out that Spain wasn’t singled out even though it had a deficit of more than 3% of GDP. The European Union doesn’t have to bring charges if it thinks deficits will only last for a short time.
