What is the risk for France after the European Union opens a procedure for excessive public deficit?

This procedure is above all symbolic. While it will undoubtedly damage France’s image internationally, there is little risk that the country will be fined.

France once again among the worst performers in the European Union (EU). On Friday, July 26, the Twenty-Seven formally launched procedures for excessive public deficits targeting seven member states, including France.

According to a statement from the Council of the European Union, France, Belgium, Hungary, Poland, Slovakia and Malta are targeted. The Council also extended the procedure launched in 2020 against Romania.

According to the Stability Pact, member states must respect budgetary discipline. “Their deficit must not exceed 3% of their gross domestic product (GDP) and their debt must not exceed 60% of their GDP”justifies the press release. However, these countries all exceeded these limits last year. Noting the existence of excessive deficits, and on a proposal from the European Commission, the Council of the European Union singled out the seven States.“The excessive deficit procedure aims to ensure that all Member States return to or maintain budgetary discipline and avoid running excessive deficits”the press release states.

In 2023, France’s public deficit reached 5.5% of GDP and the debt 110.6% of GDP. Figures far from respecting the limits imposed by the Stability Pact. Contacted by franceinfo, Elliot Aurissergues, researcher at the French Economic Observatory, believes that Brussels could no longer accept the state of French public finances. “The macroeconomic conditions were no longer in place to justify such a deficit”he says.

According to him, with the end of the “whatever it takes” decision decided during the pandemic and the energy crisis of 2022, the public deficit should have been much lower. “We were expecting an improvement in 2023, but in the end, it was the opposite with a surprise deterioration”explains the researcher. In March 2024, Bruno Le Maire, Minister of Economy of the resigning government, justified on RTL, the state of public finances by “tax revenues much lower than expected”. Despite this surprise, the minister did not abandon his objectives. “My determination to restore public finances and return to below 3% public deficit in 2027 is intact”he assured. According to Elliot Aurissergues, the Commission considered that this objective would be too difficult to achieve.

Now France has several months to rectify its course. The countries targeted by the disciplinary measures must send medium-term plans by September 20 on how to get back on track. “France will have to convince the Commission that the objective is still achievable and propose concrete measures to achieve it”notes the researcher.

In November, once these proposals have been examined, the European Commission will then communicate detailed assessments of these plans containing “recommendations to Member States to take effective measures to correct their deficit within a given time frame”Countries must return to a sustainable trajectory and reduce their public deficit by 0.5 points of GDP per year, as provided for in European rules. These recommendations will have to be validated again by the Council of the European Union in December.

This procedure places the States concerned “under increased surveillance” by the European Commission. Compliance with their commitments will be inspected and scrutinized. In spring 2025, France will have to transmit “an annual progress report”in order to clarify its budgetary trajectory and take stock of the reforms undertaken.

If France does not respect its commitments, it could be fined. The Stability Pact provides in principle for financial sanctions of 0.1% of GDP per year, or nearly 2.5 billion euros in the case of France. However, to date, no sanctions of this type have ever been applied within the framework of the Stability Pact.

This is not the first time that France’s public deficit has been in the European Commission’s sights. Indeed, France was considered to have an excessive public deficit by the European Commission between 2003 and 2007, and again between 2009 and 2018.

According to Elliot Aurissergues, this procedure is therefore above all symbolic.“France’s political weight and reputation could be damaged by this procedure.”he judges. According to him, if these procedures were to multiply against Paris, they would risk in the longer term harming the functioning of the European Union, France being one of the founding countries of the EU.