Europe: Focus on EU budget approval in France
2024-11-12
■The Eurozone will launch the 2025 budget approval process in late November, adopting a new framework
■ Amid France's delayed achievement of fiscal revenue and expenditure targets and uncertain prospects, the European Commission's assessment has become the focus
In the eurozone, the implementation of the Stability and Growth Pact (SGP), suspended from 2020 to 2023, will resume in 2024, and there are plans to promote fiscal soundness. On April 30, 2024, the EU's new economic governance framework came into effect, officially resuming the fiscal policy expanded due to the energy crisis caused by the COVID-19 epidemic and Russia's invasion of Ukraine. Based on the new framework, the EU's 2025 budget approval process (European semester) will commence in late November.
In the new economic governance framework, eurozone member states must develop a medium-term fiscal structural plan that includes fiscal goals, priority reforms and investments, and addressing potential macroeconomic imbalances during fiscal adjustment periods. Although the autonomy of member states in budget formulation has expanded, the requirements for strict implementation have also been strengthened. Suppose the SGP targets of a fiscal deficit to GDP ratio not exceeding 3% and a debt balance to GDP ratio not exceeding 60% are unmet. In that case, the European Commission will provide a path for debt reduction for four years (which can be extended to seven years under specific conditions). Member states must develop a medium-term fiscal structure plan based on this path, including a safety margin to achieve SGP standards.
One of the focuses in the European semester (fall program) is the evaluation and recommendations of the French budget by the European Commission. After the French National Assembly elections in June and July, the new government released its 2025 budget proposal on October 10th. The French government predicts that the fiscal deficit to GDP ratio will increase from the original budget of 4.4% to 6.1% in 2024, and according to the current revenue and expenditure plan, it will further expand to 7% in 2025. The 2025 budget proposal plans to reduce the deficit to 5% by cutting spending by 60 billion euros and increasing taxes, while the 3% target to meet SGP standards will be postponed for two years and achieved by 2029. However, there is substantial skepticism towards the premise of the budget, and after the budget was released, the two major rating agencies downgraded France's rating outlook. In the financial market, the interest margin between French and German treasury bonds has expanded after President Macron announced the National Assembly's dissolution, which is still near the highest level in the past decade. If suggestions are made during the European semester, it may require France to achieve fiscal soundness further while exacerbating political chaos and the resurgence of budgetary concerns in France.
■ Amid France's delayed achievement of fiscal revenue and expenditure targets and uncertain prospects, the European Commission's assessment has become the focus
In the eurozone, the implementation of the Stability and Growth Pact (SGP), suspended from 2020 to 2023, will resume in 2024, and there are plans to promote fiscal soundness. On April 30, 2024, the EU's new economic governance framework came into effect, officially resuming the fiscal policy expanded due to the energy crisis caused by the COVID-19 epidemic and Russia's invasion of Ukraine. Based on the new framework, the EU's 2025 budget approval process (European semester) will commence in late November.
In the new economic governance framework, eurozone member states must develop a medium-term fiscal structural plan that includes fiscal goals, priority reforms and investments, and addressing potential macroeconomic imbalances during fiscal adjustment periods. Although the autonomy of member states in budget formulation has expanded, the requirements for strict implementation have also been strengthened. Suppose the SGP targets of a fiscal deficit to GDP ratio not exceeding 3% and a debt balance to GDP ratio not exceeding 60% are unmet. In that case, the European Commission will provide a path for debt reduction for four years (which can be extended to seven years under specific conditions). Member states must develop a medium-term fiscal structure plan based on this path, including a safety margin to achieve SGP standards.
One of the focuses in the European semester (fall program) is the evaluation and recommendations of the French budget by the European Commission. After the French National Assembly elections in June and July, the new government released its 2025 budget proposal on October 10th. The French government predicts that the fiscal deficit to GDP ratio will increase from the original budget of 4.4% to 6.1% in 2024, and according to the current revenue and expenditure plan, it will further expand to 7% in 2025. The 2025 budget proposal plans to reduce the deficit to 5% by cutting spending by 60 billion euros and increasing taxes, while the 3% target to meet SGP standards will be postponed for two years and achieved by 2029. However, there is substantial skepticism towards the premise of the budget, and after the budget was released, the two major rating agencies downgraded France's rating outlook. In the financial market, the interest margin between French and German treasury bonds has expanded after President Macron announced the National Assembly's dissolution, which is still near the highest level in the past decade. If suggestions are made during the European semester, it may require France to achieve fiscal soundness further while exacerbating political chaos and the resurgence of budgetary concerns in France.