EU gives France, Italy provisional green lights on their budget despite early concern

Economic Indicators Associated Press

The European Union's head office said Tuesday it is giving the 2015 French and Italian budgets a provisional green light, saying last-minute commitments to keep deficits down kept them within limits.

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EU Monetary Affairs Commissioner Jyrki Katainen said that he could not "immediately identify cases of 'particularly serious non-compliance'" with EU rules that force the euro member states to observe strict limits on spending.

France and Italy were accused of being too profligate in their budgetary spending plans at a time when the EU and the euro zone have been advocating strict austerity as the best way to beat the financial crisis.

Without naming any member state, Katainen said those that had come under initial suspicion of failing to play by those austerity rules "have responded constructively to our concerns."

The wrangling about the extent of a nation's budget deficit highlights a fundamental economic debate in Europe about whether spending to spur growth or sustained austerity is the best way to get out of the crisis which has hit the EU for the past half-decade.

France has a 21-billion-euro cost-cutting plan for next year and announced an extra 3.6 billion euros on Monday to appease the EU head office. Yet, those projects still see France heading for a 4.3 percent deficit next year. It will keep the pressure on Paris high to bring its deficit below the EU standard threshold of 3 percent of gross domestic product within two years.

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Though the Italian budget will respect the 3 percent limit, its overall debt is extremely high and Rome has said it will delay balancing the budget until 2017.

The cabinet of Premier Matteo Renzi late Tuesday reduced its deficit plans by another 4.5 billion euros at the request of the EU to bring down its debt to GDP ratio to 2.6 percent next year.

The EU head office itself is under heavy pressure to enforce the rules, especially when two of the larger euro economies threaten to flout them. Working with a strict austerity template, it wants to keep member states from building up huge debts of the kind that plunged the region into a crisis five years ago.

Katainen must have his final opinion on the budgets ready by the end of November. "Any shortcomings or risks will be clearly highlighted at that point," he said.

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Sylvie Corbet in Paris and Colleen Barry in Milan contributed.

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Raf Casert can be followed on Twitter at http://www.twitter.com/rcasert