France under monitoring

The Eurogroup meeting focused on France yesterday, as Finance ministers had a discussion on fiscal surveillance based on analysis by the European Commission and the new recommendations for Countries under the Excessive Deficit Procedure (EDP). 

The situation is deemed to have improved in most countries over the last three months, thanks to a better economic situation, but concerns remain that two countries, namely Austria and France, may be in breach of the Stability and Growth Pact. 

France was given two more years to reduce its deficit below 3% of GDP, but additional measures will be necessary to reach the structural adjustment required in the new recommendation. 

Moreover, France is expected to "come forward in May with more detailed plans to reform its economy". This is a clear warning sent to France by euro area finance ministers, who are upset to see one of the largest countries of the currency union breaching the rules.

Barclays notes in a report on Tuesday:

• We think that financial sanctions are very unlikely to be proposed on France.
• We think the country is now under a very strict monitoring and will have to show significant efforts to comply with both the fiscal and the macroeconomic part of the enhanced surveillance, which will require more structural reforms to be presented by the government before the summer, both on public spending and on the functioning of the labour market.