EU executive proposes disciplinary budget steps for France, others
BRUSSELS (Reuters) - The European Commission on Wednesday proposed disciplinary steps against France and six other EU countries over running excessive budget deficits, but will announce deadlines for their reduction only in November.

The countries singled out by the EU executive arm, which is the enforcer of EU laws, are Belgium, France, Italy, Hungary, Malta, Poland and Slovakia. The deficits are mainly a legacy of the COVID pandemic and the energy price crisis that followed Russia's invasion of Ukraine in 2022.

France is in the spotlight because it is the EU's second biggest economy and faces political turmoil after President Emmanuel Macron called snap national elections for June 30-July 7 in response to his party's poor results in European election.

The disciplinary steps, known as the excessive deficit procedure, will be the first such move since the European Union suspended its fiscal rules, aimed at preventing excessive borrowing, in 2020 and then reformed the framework to take into account the new economic realities of high post-pandemic debt.

France had a budget deficit of 5.5% of gross domestic product in 2023, which is expected to narrow only slightly to 5.3% this year, still well above the EU deficit limit of 3% of GDP.

French public debt was 110.6% of GDP in 2023 and the Commission expects it to increase to 112.4% this year and 113.8% in 2025. That is almost twice the EU limit of 60%.

Talks between Paris and the Commission on how quickly to reduce France's deficit and debt will take place in the coming months after the EU executive proposes to Paris a seven-year path to put debt on a downward path.

"Whatever government is formed after the election on July 7 will face the obligation to work with the Commission to define a medium term strategy," a French finance ministry official said.

"Eventually it will have to produce a strategy coherent with the new Stability and Growth Pact," the official, who asked not to be named, said.

But with the far right National Rally (RN) party of Marine Le Pen leading in polls ahead of the vote, the Commission will likely be facing a strongly euro-sceptic government in Paris that wants to loosen, rather than tighten, fiscal policy.

Le Pen's party wants to lower the retirement age and energy prices and raise public spending, and supports a protectionist "France first" economic policy, making markets already worried about the country's public finances.

"The gradual fiscal consolidation planned by the current government will be the first casualty of the political crisis," Oxford Economic economist Leo Barincou said in a note.

"A divided parliament is unlikely to be able to agree on politically difficult spending cuts, which would result in a higher deficit than our current baseline. Meanwhile, the implementation of the RN platform as it currently stands would add to the public deficit," he said.

Investors dumped French assets last week because of the political uncertainty, with French bond yields recording their biggest weekly jump since 2011 and bank stocks tumbling.

(Additional reporting by Leigh Thomas in Paris; Reporting by Jan Strupczewski; Editing by Bernadette Baum and Tomasz Janowski)
BRUSSELS (Reuters) -     The European Commission on Wednesday proposed disciplinary steps against France and six other EU countries over running excessive budget deficits, but will announce deadlines for their reduction only in November.