November 27, 2014 / 10:54 AM / in 3 years

Exclusive: France, Italy, Belgium may break budget rules, EU to revisit in March

BRUSSELS (Reuters) - The European Commission will tell France, Italy and Belgium on Friday their 2015 budgets risk breaking EU rules, but it will defer decisions on any action until early March.

European flags are seen outside the European Commission headquarters in Brussels September 10, 2014. REUTERS/Yves Herman

At that point, France could face a multi-billion euro fine and Italy and Belgium be put on a disciplinary program.

Draft documents seen by Reuters show the three countries are part of a group also comprising Spain, Portugal, Austria, and Malta at risk of busting budget limits.

The Commission urges all of the countries not to break their budget limits, but picks out Rome, Paris and Brussels for a second review of compliance in March.

In comments later reported in the Friday editions of several newspapers, Commission President Jean-Claude Juncker said no final decisions on sanctions would be taken until then in order for governments to come up with concrete measures and clear timetables, not mere promises, to address their budget problems.

The delay gives them more time to adjust policy before the EU executive must decide whether to fine France for missing targets or put Italy and Belgium under a disciplinary procedure because of their debt levels.

“Overall, the Commission is of the opinion that the Draft Budgetary Plan of France, which is currently under the corrective arm, is at risk of non-compliance with the provisions of the Stability and Growth Pact,” said a draft document.

“The Commission will examine in early March 2015 its position vis-a-vis France’s obligations under the Stability and Growth Pact in the light of the finalization of the budget law and of the expected specification of the structural reform program announced by the authorities,” it said.

The wording for Italy and Belgium is the same.

Reacting to the news, French Finance Minister Michel Sapin told Reuters that Paris understood the Commission wanted to know more about “the exact reality of the budget in 2014 and the forecasts for 2015.”

“I can clearly say that for 2014 France will respect the conditions that allow us to be in line with the application of the rules. The advantage of March is that we won’t be working with hypothesis but with real data,” he said.

RISING DEBT

The Commission will publish the assessments of all of the draft budgets of the 18 euro zone countries, except Greece and Cyprus which remain under bailout programs, on Friday.

The assessments are a new power the EU executive obtained last year in the wake of the sovereign debt crisis to make sure governments did not ignore EU rules that set limits on the size of public debt and deficit.

France has angered the European Commission and euro zone peers because in June 2013 EU finance ministers gave Paris two extra years, until 2015, to bring its budget deficit below the EU ceiling of 3 percent of gross domestic product.

But Paris said in September it would miss also the 2015 deadline and would need until 2017 to comply, citing lower than expected growth and inflation.

If the Commission decides Paris did not take action to meet the targets set by the ministers, France would face a fine of up to 4.2 billion euros.

Italy and Belgium are in the spotlight because under EU rules they should be reducing their large public debt, which, instead of falling, is expected to rise. The focus is on the pace of the deficit reduction over the business cycle, which in the Commission’s view is too slow next year.

If the view is confirmed in March, both countries could be placed in a disciplinary process which involves setting annual targets for fiscal policy, closer monitoring and the risk of fines for non-compliance.

Additional reporting by Leigh Thomas in Paris; editing by Andrew Roche

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