France gets until 2017 to meet EU deficit rules

(BRUSSELS) - The EU on Tuesday gave France two more years until 2017 to bring its budget deficit back into line, meaning the eurozone's second biggest economy avoids an embarrassing fine for now.

Paris is not off the hook and must present a reform plan to Brussels by April to show how it intends to get its deficit back below the EU's ceiling of 3.0 percent of economic output, the European Commission said.

Italy and Belgium will face no action because they have made enough progress toward bringing their deficits back into line with European Union spending regulations that were tightened in the wake of the eurozone debt crisis, the EU said.

"Today we have decided to propose a new recommendation to France as to how to address its excessive deficit, and set a new deadline for it to be below 3.0 percent, this being by 2017," the bloc's euro commissioner Valdis Dombrovskis said.

Speaking at a hastily arranged press conference after a meeting of all 28 European Commissioners, Dombrovskis said they were "unanimous that France must step up efforts on both fiscal and (the) structural side."

In November, Brussels gave France, Italy and Belgium an extra three months to come up with plans to bring their deficits back under the ceiling.

Theoretically countries face penalties if their deficit stays above 3.0 percent of GDP but any fine against one of the EU's founding members such as France would have been unprecedented.

- France vows action -

While Greece's debt crisis has hogged recent headlines, France's finances have long been a source of worry in the 19-country eurozone as the single currency area struggles to pull out of near-zero growth.

French finance minister Michel Sapin quickly pledged that Paris would meet the deficit target.

"That is exactly the goal the government set for 2015 and the coming years in its public finance programmes," Sapin said in a statement.

France had already won two previous extensions, firstly under the presidency of Nicolas Sarkozy and then under current President Francois Hollande as economic growth stalled.

The new French deadline is now in politically sensitive territory during France's next presidential election in 2017.

The EU commissioners rejected suggestions that Brussels was going easy on France because of the size of its economy, in comparison to its harsh treatment of debt-stricken Greece and other smaller countries.

Dombrovskis admitted however there had been a "very detailed, intensive debate" at Wednesday's meeting, amid reports of divisions about whether to impose penalties on Paris.

- Penalties still an option -

In return for the extension, France must now submit a new economic reform programme to Brussels in April to show it can hit the deficit target over the longer time frame, EU Economic Affairs Commissioner Pierre Moscovici said.

"France has already announced reforms in the past few days. We expect France to present a more complete national reform programme in April which we will consider in May," added Moscovici, a former French finance minister.

In practice, that means French budget plans will have to be adjusted to produce savings equal to 0.5 percent of GDP to set against the deficit, compared with the current 0.3 percent.

Prime Minister Manuel Valls said France was moving on reforms.

"My objective is to reform the country, not because European institutions are forcing us to do so" but "because this is key to the future of the nation," he said at a press conference in Paris.

Penalties remain on the table if France still fails the EU's tests, Moscovici added.

"Sanctions are always an option," he said. "But sanctions are always a failure -- a failure for those imposing them and those receiving them."

Feeling the pressure from the EU, Paris in December revised its deficit forecast for 2015 to 4.1 percent from 4.3 percent, still way above the EU's 3.0 percent ceiling.

It also revised its estimates for 2016 to 3.6 percent and for 2017 to 2.6 percent.

Economic powerhouse Germany meanwhile also came in for criticism from the EU over the fact that it is sitting on a pile of cash from a budget surplus resulting from its huge exports.

The Commission said Berlin must take "decisive policy action and monitoring" over what it called economic imbalances, caused by a lack of public and private investment.

Germany has long faced calls to boost spending to help the flagging growth elsewhere in the eurozone.

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