Europe’s economic future depends on French reforms

The crisis of confidence in the euro – when millions of citizens feared for their savings and virtually the entire economic system was at risk – is over. This is largely due to the tremendous efforts of EU member states, and European institutions in Brussels and Frankfurt that worked well together to avert disaster. That we have mastered this crisis together is undoubtedly a success.

But questions remain. As the EU’s autumn economic forecasts showed, growth prospects remain weak. There is talk of stagnation and a possible risk of a return to the crisis. If we are to avoid this, and really put the threat behind us, we need to chart a credible course in economic and financial policy. Our work on bolstering confidence in the euro must continue. And, to achieve this goal, structural reform will play a critical role.

In this regard, the role of eurozone heavyweights such as France and Germany will be decisive. But so too will be the more immediate question of how strict the European Commission is in addressing the issue of France and its high budget deficit.

Next week the new commission is set to take probably the hardest and most serious decision since taking office this month. It must decide whether Paris should for the third time be granted extra time to bring its budget deficit below the limit of 3 per cent of gross domestic product set out in the stability and growth pact, the rules under­pinning the single currency. France last managed to stay beneath that limit in 2009. The commission has twice granted an extension, most recently until 2015.

Yet the autumn official forecasts show even this will not be met. On the contrary: without additional efforts France’s deficit will rise further – to 4.5 per cent of GDP in 2015 and 4.7 per cent the following year. For 2014 it is forecast at 4.4 per cent.

This raises the question of the willingness to act and whether to go further in tackling the deficit; and of how the commission should respond. It would not be credible to extend the deadline without asking for clear, concrete steps in return. France must commit to policy goals that can solve its economic and fiscal problems in the long term.

This should not be seen as a decision taken against France but rather as a measure for, and with, France. It is not just about one country. Without an economically strong France, the eurozone as a whole will not recover.

Paris has already shown a possible way out of this situation. At the EU summit in June, it endorsed recommendations on economic and budgetary policy aimed at, among other things, tackling deficits, reducing labour costs and slashing red tape.

France has taken a number of steps with regard to some of these points but it has not gone far enough. For example, it has introduced a pension reform. Yet as it stands, this reform appears unlikely to meet the objective of ending the deficit in the pension system any time soon. With regard to high labour costs, the government has relied on additional public spending rather than improvements in wage-setting. Similarly, a cut in corporate tax has been announced but is set to take place only in a few years.

This means the biggest, most urgent challenge facing France remains the need to implement deep structural reforms. Only these will increase investment, create jobs and boost growth. Structural reforms are also the best way to rebuild the trust needed to provide the economy with effective credit once more.

For this reason any extension of the deadline by which France must correct its excessive deficit and comply with the stability pact is acceptable only if Paris makes a clear and credible commitment to reform. Yes, some steps have already been taken. But these have been too few and not sufficiently ambitious. More is needed. That is in the interest of France but also of the eurozone as a whole.

Therefore the commission should link any extension of the deadline to concrete, measurable policy steps; and it should also set the timeline for their implementation. The Lisbon treaty that underpins the EU offers ways to do this. We should use these. For the sake of France – and for Europe.



Günther Oettinger, a member of Germany’s Christian Democratic Union, is EU commissioner for the digital economy and society



Fonte: FT