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EU Commission to assess French budget in spring 2019

STRASBOURG (Reuters) - The European Commission will make a final assessment of the French budget for 2019 in the second quarter of next year when it releases new economic forecasts, a spokesman for the EU executive said on Tuesday.

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He was responding to a question about the Commission’s view of new spending increases announced by French President Emmanuel Macron on Monday that are likely to increase France’s budget deficit, possibly in violation of EU fiscal rules.

“We have a well established process to monitor and assess member states’ economic situation and fiscal policies,” spokesman Margaritis Schinas told a news conference.

He said the Commission had already published an opinion in November on the French draft 2019 budget in its earlier version, without the spending announced by Macron, and would not return to the subject until May next year.

In the November document, the EU executive said the French budgetary plan was “at risk of non-compliance” with EU rules because instead of improving the structural deficit by 0.6 percent of gross domestic product, as required, Paris had committed to a 0.2 percent structural improvement.

In concessions to anti-government protesters, Macron announced on Monday wage hikes for the poorest workers and a tax cut for most pensioners. That leaves his government scrambling to come up with extra budget savings or risk also blowing through the EU’s 3 percent of GDP limit on headline deficit.

The French government now expects a 2019 headline deficit of 2.5 percent of economic output excluding the one-off impact of transforming a payroll tax rebate into a permanent cut, the budget minister said on Tuesday.

As the overall deficit was previously expected to be 2.8 percent, the new underlying deficit risks pushing the overall number towards 3.4 percent. Structural deficit targets could also be missed with a wider gap.

But Schinas made it clear the Commission would not move immediately to discipline France over the plans.

“The fiscal impact of the final budget that emerges from the parliamentary process will be assessed in (the) spring when we publish our economic forecasts,” he said.

Reporting by Jan Strupczewski in Brussels; Editing by Mark Heinrich