French finance minister: EU debt regulations 'obsolete'

Bruno Le Maire renounces the 'frugal' union and pledges more economic changes.

France's finance minister has cautioned that EU debt regulations for member nations are "obsolete" and need be rethought to account the costs of epidemic, war, and increasing inflation.

Bruno Le Maire said a “new economic model” was emerging in Europe as public spending ballooned and said any contrast between “frugal” northern EU member states, led by Germany, and profligate southern countries was no longer relevant.

“Is there a single state in Europe, in the eurozone, that has left its citizens on their own to face inflation? Not one,” Le Maire said in an interview. “This concept of ‘frugal states’ has been dead for a long time. The Netherlands are not particularly frugal. Germany is not particularly frugal. They spend as much as we do to protect their citizens from inflation.”

Given the need for large investments in renewable energy to combat climate change and for increased defence spending following the Russian invasion of Ukraine, the French minister's insistence on new economic thinking in the EU contrasts with the more frugal views of Christian Lindner, the German finance minister.

In May, Lindner stated that the EU needs to be "tougher, not gentler" about the reduction of public debt.

Le Maire admitted that the EU still need the stability and growth pact's limitations on member states' public debt and yearly deficits. But the rules — which have been suspended during the pandemic and which are supposed to limit a nation’s public debt to 60 per cent of gross domestic product — “should be rethought”, he said.

“The debt rule is obsolete, simply because you have a gap of more than a hundred percentage points between one country and another in the same monetary union [the eurozone],” he said. What was important now, he added, was the trajectory of debt reduction.

The suspension of the stability and growth accord was prolonged to the end of 2023 as a result of the conflict and ensuing inflationary rise. Germany's public debt, at 69% of GDP, surpasses EU criteria, while France's, Italy's, and Greece's have increased to 113%, 151%, and 193%, respectively, according to EU figures.

Investors are becoming increasingly concerned about the economic stability of the EU. Recent increases in the gaps between the borrowing rates of various nations have sparked fears of another eurozone debt crisis, prompting the European Central Bank to agree to develop new policies to counteract any unreasonable sell-off of a country's bonds.

Le Maire backed the EU's goal of maintaining budget deficits below 3% of GDP. According to his projections, France's public debt would begin to decline in 2026, and the deficit will be reduced to less than 3% in 2027, compared to the deficit predicted of 5% for this year.

Le Maire's remarks come as France strives to transition away from a time of high government expenditure designed to aid consumers and companies during Covid-19 and inflation caused by the war in Ukraine.

The finance minister, a key member of Macron's government since 2017 and head of a "super-ministry" of finance and industry, stated that an upcoming bill to mitigate the impact of inflation would include more "targeted and temporary measures," following €26bn of broader spending programmes including fuel subsidies and price caps for retail electricity and gas.

Le Maire vowed to pursue pro-business policies and tax cuts aimed at attaining full employment, a goal that has evaded France for more than 50 years despite Macron's re-election.

“Achieving full employment is the key to repairing France’s public finances. Getting there will require continuing to reform the labour market, unemployment benefits and training, as the president has promised,” he said. Changing the costly pensions system to raise the retirement age remained a priority, he added.

On each measure, the administration will need to negotiate concessions with opposition lawmakers.

“Faced with this new political situation, we must stand firm and remain calm,” Le Maire said. “There are 164 deputies in parliament who are not of the far left or the far right with whom we are perfectly willing to work and who will allow us to strike compromises.”

The radical left is urging the government to impose a windfall gains tax on energy corporations that have benefited from the war in Ukraine and increased oil and gas prices, similar to those adopted in the United Kingdom and Spain.

When asked if he would adopt such a tax, Le Maire did not rule it out but stated that he would wait until the end of the year to see if it was necessary. “The burden of inflation must be fairly shared between the state and business,” he said, adding that he had already convinced companies including Total and container shipping group CMA CGM to make voluntary moves to blunt the inflation pain.

By fLEXI tEAM