French President Emmanuel Macron‘s ability to reign in the massive country’s deficit is being called into question after his government gave in to protesters’ demands and provided them with wage hikes and tax breaks only days after they marauded through central Paris and destroyed property in defiance of Macron’s decision to increase energy costs.
The European Commission should focus on the French budget, Seeking a similar deal,
The French government’s decision to cave to the protestors has led Italy’s Deputy Prime Minister Luigi Di Maio to demand that Brussels review the promised package of concessions that were proposed by Macron as they exceed the deficit-to-GDP ratio allowed by the EU.
“According to our calculations, the measures do not comply with the deficit-to-GDP ratio that has been given,” Luigi Di Maio said. “Seeing what is going on in Paris, I refuse to believe that Brussels, for the sake of a few decimal places, will impose sanctions, inspectors and commissars,” Deputy Prime Minister Matteo Salvini said on Sunday.
Macron announced a minimum wage hike and a tax break for pensioners, in addition to scrapping the fuel tax that triggered the Yellow Vests protests. The cumulative cost of these measures could be €10-to-14 billion and €20 billion more for the one-off payroll tax rebate scheme.
Without the rebate, French government officials argue, the deficit would be at 1.9%. Macron did not specify how the French government will be able to remain below the 3% of GDP deficit threshold, especially as economic growth in the Eurozone is decelerating, leaving the French government’s projection of 1.7% growth for 2019 seems increasingly optimistic.
“In all likelihood, the 2019 public deficit will be above the 3% benchmark,” Societe Generale economist Michel Martinez projects, according to Reuters.
French government spokesman, Benjamin Griveaux, stated that fiscal consolidation would be achieved through cuts in government spending. The European Commission will now be under pressure to demand more firm and explicit commitments.
In the meantime, during a parliamentary debate in Italy, the ruling Eurosceptic coalition resisted any major policy compromise that will allow the Italian deficit to drop below 2.4% of GDP. The government is making the case for a 2% target, although parliamentarians do not want to drop below 2.2%.
Italy’s Economy Miister Giovanni Tria is making the case that dropping the target and regaining market confidence would have the same effect as Italy would spend more to service its debt, while also allow the banking sector to stand on its own without government support.