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France’s Macron ‘must show example’ on deficit: EU commissioner

France may no longer be the eurozone's deficit "dunce" but President Emmanuel Macron must do more to improve the country's finances "if he wants to be the leader in Europe", the EU's economy commissioner said on Sunday.

Published: 28 January 2018 16:29 CET

France's Macron 'must show example' on deficit: EU commissioner

President Emmanuel Macron at a press conference on Friday. PHOTO: LUDOVIC MARIN / AFP

France has long been in the EU's crosshairs over its deficit, which has repeatedly overshot an EU limit of three percent of gross domestic product.

Macron, who is pushing for a profound transformation of the EU, has slashed public spending in a bid to restore France's credibility, driving down the deficit to an estimated 2.9 percent in 2017 — the first time in a decade it will come in at under three percent.

In an interview with France's Europe 1 radio Economic Affairs Commissioner Pierre Moscovici urged Macron not to rest on his laurels and to continue reforming France's big-spending ways.

“Emmanuel Macron wants to be… the leader in Europe and to be the leader in Europe, you must show example,” he said.

“Three percent is not a target, it's an absolute limit,” the former French economy minister said, adding that while he was satisfied his country was no longer the “dunce” of the eurozone its deficit was still far in excess of the eurozone average.

“The average deficit in the eurozone is not 2.8 or 2.7 percent it's 0.9 percent,” he noted.

The French government has forecast a deficit of 2.8 percent in 2018 — a figure seen as somewhat optimistic by Brussels which expects it to remain at 2.9 percent before inching back up to 3 percent in 2019.

“France is doing better, it is doing better on its deficit, it is doing better on growth. But France must aim very high, it must aim for the top spot,” Moscovici, a Socialist, urged, calling for a “very strong deficit reduction”.

His call comes at the end of a week in which France's Court of Auditors — the public spending watchdog — also warned that the eurozone's second-biggest economy was not on a sound footing deficit-wise.

“Even with a deficit under the three percent limit, France still has one of the worst financial situations among almost all its eurozone partners,” the court's president Didier Migaud warned, calling for faster structural reforms.

How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year.

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’, Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn.

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment?

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024 about 1 percent below the estimated structural level.

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending?

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”. The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”.

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025.

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023.

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write.

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers.

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.”

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