France and Europe Need to Get Finances in Order, ECB’s Knot Says

(Bloomberg) -- European Central Bank Governing Council member Klaas Knot urged European governments to get their finances in order — highlighting France’s particular need to do so.

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“A significant fiscal consolidation in, for instance, France is necessary to bring public finances back on track,” the Dutch central-bank chief said on Saturday at a Group of 30 event in Washington.

Knot said that uncertainty about fiscal policy is — together with political polarization and geopolitical tensions — adding to consumer’s reluctance to spend and weighing on the outlook for growth in the region.

France’s fiscal affairs are currently under intense scrutiny as President Emmanuel Macron’s plans to pare back the budget deficit have repeatedly slipped off course. Adding further uncertainty, his decision to call snap elections in June has clouded the outlook for policy in France, leaving it with a minority government that could easily be toppled by parliament.

Rating companies have taken note: Knot commented less than 24 hours after France’s credit assessment was put on a negative outlook by Moody’s — the third adverse verdict in the space of two weeks over the deterioration of public finances and the political challenges in containing swollen budget deficits.

All that comes after France already was reprimanded by the European Union via a so-called excessive deficit procedure that requires remedial action and can lead to fines for non-compliance.

“In line with the revised fiscal framework, the fiscal stance in the euro area is expected to tighten this year, and coming years, as energy and inflation support measures are gradually phased out,” said Knot. “Debt levels, however, are expected to increase, particularly in high-debt countries.”

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