Macron not ready to wean France off ‘spending’

Bloomberg

French President Emmanuel Macron’s first annual checkup with the European Union’s budget doctor won’t be pretty.
His government, which may gain from accelerating growth, is postponing the spending cuts needed to narrow the structural budget gap as required by the European Commission, say two people with knowledge of documents being sent to Brussels this month. With elements of the plan to be unveiled to the French cabinet this week, many are warning that the country needs to do more.
“Lasting fiscal consolidation demands that France tackle its high level of government spending,” Bank of France Governor and European Central Bank Governing Council member Francois Villeroy de Galhau said on Tuesday in Paris. “France is the only major European country that has both a large budget deficit and company funding needs,” creating “the conditions of a lasting exterior deficit.”
Yet about a year after taking office, Macron will be disregarding budgetary discipline, refusing to wean France off what his Prime Minister Edouard Philippe calls the country’s “ addiction to public spending.” Macron’s defense: If he cuts entitlements, he will have a revolution on his hands.
As rail workers, students, pilots, retirees and others take to the streets to protest his reforms, he wants to do everything he can to avoid a flaring of violent demonstrations like those 50 years ago that paralysed France and destabilised then-president Charles de Gaulle.
“France is off the budget track and unlike his predecessor, Macron isn’t even trying to pretend the contrary,” said Francois Ecalle, head of the independent Paris-based fiscal-monitoring body Fipeco. “The government is axing taxes before spending; it’s hard to see how this is going to work.”
For starters, the Commission could demand tweaks to the budget plans to comply with its targets. On a broader scale, the lack of fiscal discipline may dent France’s credibility with the markets and its partners, especially as Macron makes clear his ambitions for greater European integration.
“A key question is whether France’s EU partners remain confident that Macron is able to deliver on the economic transformation agenda that he committed to,” said Brussels-based Robin Huguenot-Noel, a researcher at the European Policy Center.
The French budget forecasts in the stability plan to be presented to the cabinet will be line with those presented in September, said the people, who declined to be identified because the information hasn’t been made public. In September, the International Monetary Fund estimated France’s deficit will reach 3.2 percent of output in 2019, larger than the EU’s 3 percent target.
The euro region’s second-largest economy is delaying from 2019 to at least 2023 reaching a so-called structural deficit of 0.4 percent of gross
domestic product, as prescribed by EU rules.