Does France have the fiscal space to counter the economic slowdown?
This week, the European Commission sent a letter to France and Italy, expressing concern about their 2020 budget plans. In the case of France, the spending evolution scheduled for 2020 fails to comply with the structural effort promised (0.6pp of GDP vs 0.0pp scheduled) and with the debt reduction path previously settled. France was invited to react by giving more information on why it is the case before deciding on a qualification of this breach of the rules. France answered today that it is still determined to reach a budget balance (something which has not happen in any of the last 40 years), though just not right now… Although there is a strong sense of “déjà vu” in the mail exchange between Bercy and Brussels, we think that a strong answer from Brussels is unlikely for the time being. Not only because the new European Commission is still to be confirmed, but also because the economic slowdown in the Eurozone has pushed the European Central Bank to call for countries which “have fiscal space” to use it and help avoid a prolonged slowdown of the Eurozone economy.
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