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 It would be the first time the EU executive exercises its power to
demand changes to a national budget draft under new prerogatives
that EU countries granted the Commission in 2013.
The Commission is also likely to step up the disciplinary procedure
against France to the final stage before fines while at the same
time granting Paris the extra two years it wants to bring down its
budget shortfall within EU limits.
The decisions, some of which will be taken by the outgoing
Commission before a new team led by Jean-Claude Juncker takes office
in November, would give France more time while upholding the
credibility of the recently toughened EU budget rules, one euro zone
official with insight into the process said.
Such a solution would also help the designated Commissioner in
charge of policing budgets, France's Pierre Moscovici, to prove he
will not give preferential treatment to his country, as many
center-right members of the European Parliament suspect.
Moscovici was ordered to submit written replies by Tuesday to
detailed questions on how much flexibility he would give to
countries that repeatedly breach EU fiscal rules after lawmakers
found his answers at a hearing last week evasive.
"It would save face for everybody," the official said of the
proposed Commission action. "Even if it would be a bit humiliating
for France, they probably know they cannot get away without
anything.
"And it would also save face for Germany and the others, who are
concerned about the longer-term effects, about not watering down the
rules, but who also want to give France and its unpopular president
a fighting chance," the official said.
Socialist President Francois Hollande's approval rating is at an
all-time low of 13 percent in some opinion polls due to public anger
over unemployment, economic stagnation, public spending curbs and
resistance to structural reforms.
"BIG POLITICAL PICTURE"
Germany, one of the strongest advocates of budget discipline in the
euro zone, has been reticent in criticizing France since the
announcement that Paris would not honor its commitments.
"Its about the big political picture in France, in the end. That's
why Germany is so reticent. In Berlin they already have a strong
picture where Marine Le Pen is the next French president," the euro
zone official said, referring to the leader of the extreme-right
National Front, who leads the field in some polls ahead of the 2017
presidential election.
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"You don't kick someone who is already down," the official said,
adding the position would have been different had Hollande's ratings
been high.
France was supposed to have brought its budget deficit below the EU
ceiling of 3 percent of GDP last year, but in June 2013 EU finance
ministers gave it a two-year extension, until 2015, because of a
recession in the euro zone.
On Sept. 10, Paris announced it would not meet the 2015 deadline
either and the deficit would only fall below 3 percent in 2017. Last
Wednesday it published a 2015 budget draft that falls well short of
the consolidation efforts sought by EU finance ministers in 2013.
While France blames weak economic growth, EU officials point out
that it has not even met the goals to reduce its structural deficit
-- stripped of the effects of the business cycle -- and so has not
taken effective action to meet its obligations.
France will officially submit that budget draft to the Commission
for scrutiny on Oct. 15 and the EU executive has two weeks to send
it back for changes if it determines that the plan breaches earlier
agreements.
"If the Commission finds that France, miraculously, did what was
required in structural terms, then there will be an extension of the
deadline," a second euro zone official said.
"If the structural adjustment is not there, the procedure will have
to be stepped up," the official said.
France was to cut its structural deficit by 0.8 percent of GDP in
2014 and the same in 2015. The budget draft however, foresees an
improvement in the structural deficit of only 0.1 and 0.2 percent
respectively.
(Reporting By Jan Strupczewski; Editing by Paul Taylor)
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