I’m going to poke my nose into European affairs, again.
The backdrop is the French budget crisis. The backdrop to that is this. In one of the EU’s responses to their part in the global economic crisis of 2008-2009, the EU passed the Stability and Growth Pact, which authorized the European Commission, the executive body of the European Union (though the Commission has its own president, the body acts like a President-by-Committee) to require EU member nations to submit their national budgets to Commission approval. If the Commission disapproved the budget and the nation in question refused to make Commission-directed corrections, the Commission could levy very serious fines on that nation.
Among the rules of the Pact is that a national deficit cannot exceed 3% of its GDP: cuts to spending and/or increases in taxes could be required by the Commission to bring the nation’s deficit in line. Various smaller nations in the EU already have been subject to budget disapproval and Commission-required corrections or fines. Belgium, for instance, faced a fine of some €800 million in 2011 ($1,131 million dollars in 2011) until it made corrections. Greece and Italy also have been hit with Commission budget mandated corrections, and they have complied.
Enter France. French Prime Minister Manuel Valls has indicated flatly that France will not play by the EU rules to which it is signatory.
I will not permit people to discuss France in this context. France is a big country. We won’t [comply with Commission budget reform requirements].
The French Finance Minister has echoed his boss.
[W]e won’t cut more anywhere, and we also won’t raise taxes.
The Germans, though, despite being economically powerful enough—because it’s still economically sound—to get France to comply, is apparently too timid to do so. Chancellor Angela Merkel has dragged out an old chestnut of hers: “contractual agreements.” These are
written agreements between the European Commission and a Eurozone country that commit that member state to undertake specific savings measures or clearly delineated structural reforms. Under the original plan, the country could then obtain financial aid from a special fund in return. For France, the reward would be a further suspension of the deficit rules.
However. With France saying it’s going to welsh on one contract that it’s signed—that Stability and Growth Pact—how could it be trusted to honor another contract it might sign, a “contractual agreement?”
Manfred Weber, who leads the European People’s Party (think of them as all of Europe’s various Christian Democrats) in European Parliament emphasized the problem.
Europe is at a crossroads. The European Commission’s credibility is at stake with its review of the French and also the Italian budgets. France’s budget has to be rejected. President Hollande needs to make improvements.
There are two questions here. Is the EU’s word worth anything? Can they be trusted to carry out their own mandates? That question won’t be answered until the end of the month, when the Commission will attempt to give its final answer regarding the French budget.
The other question is whether the French word has any value, whether it’s possible to rely on any contract France or a French entity might sign. That question seems clearly answered.