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France & Italy face budget showdown

Tuesday, October 28, 2014 - 02:12

France and Italy have unveiled plans to further trim their deficits. But will the last-minute pitches on their 2015 budgets earn them clemency from the European Commission? Sonia Legg reports.

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Their banks have passed EU stress tests but France has another challenge ahead. It must convince Brussels it's doing all it can to cut its deficit. A decision on it and Italy's 2015 budget plans will be made this week. Both countries have tried to avert confrontation by offering to further trim their deficits - Italy by an extra 4.5 billion euros and France by around 3.7 billion. So will that satisfy Brussels? Will Hobbs thinks both sides are keen to avoid a fight. (SOUNDBITE) (English): WILL HOBBS, HEAD OF EQUITY STRATEGY, BARCLAYS, SAYING: "Hopefully a lot of that noise from French politicians is just to assuage the electorate in the hope of not feeding Marine le Penn any more and you'd hope the central authorities will manage to navigate a path through this that both puts together a sensible budget for the various countries and also allows the French to continue to move slowly forward." France's additional resources will come from lower-than-expected costs on interest payments and a 1.5 billion euro reduction in contributions to the EU's budget. A crack down on tax fraud and other similar measures should net another 1.4 billion, allowing France to reduce its structural deficit - by 0.5 percentage points of GDP instead of just 0.2. But the government will still overshoot the EU's 3% of output target - and has some tough challenges ahead. Simon Derrick from Bank of New York Mellon says Brussels will be wary of the overall economic climate in Europe. (SOUNDBITE) (English): SIMON DERRICK, BANK OF NEW YORK MELLON, SAYING: "Both economies have significant problems at the moment and a failure to allow sufficient leeway in the budget does only add to some of the deflationary pressures that are building in those economies. I think therefore the next stage in all of this is that if the compromise isn't sufficiently easy on Italy and France then we have got to expect rather more action from the European Central Bank to at least make monetary conditions easier." Italy's economy is even worse than France's and several of its banks failed stress tests. Both are banking on Brussels to cut them some slack - even though it could open the door to claims from other EU members.

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France & Italy face budget showdown

Tuesday, October 28, 2014 - 02:12