France Defends Spending Push That Puts EU Deficit Limit at Risk

(Bloomberg) -- French government ministers defended a raft of new spending measures and tax cuts announced by President Emmanuel Macron, signaling that containing the monthlong Yellow Vests crisis will take priority over European Union budget rules.

“Do you think we can act at the European level as if nothing's happened?” Energy Minister Francois de Rugy said on Radio Classique, citing the Brexit vote in Britain and the rise of far-right parties in Germany. “We aren't saying that long term the debt isn't a problem. But the first priority is not to discuss this with Brussels, but with the French people.”

In a televised speech Monday night, Macron urged companies to pay their workers a year-end bonus that won't be taxed, ended levies on overtime, indicated the government would fund a 100-euro a month ($114) increase in the minimum wage, and abolished a controversial tax on pensions below 2,000 euros a month.

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The first indications from activists were that the protests would continue despite Macron's efforts, which threaten to push the government deficit over the European Union limit next year. Prime Minister Edouard Philippe will provide details of the total costs when he speaks to parliament at 3 p.m.

The French budget deficit was already projected to reach 2.8 percent next year, even before the government last week retreated on a planned fuel-tax hike and the unrest dented growth. The additional measures could push the shortfall to as much as 3.5 percent, well over the 3 percent limit imposed on countries in the euro zone, Les Echos reported, citing unnamed government officials.

Richard Ferrand, president of the National Assembly and former head of Macron's political party, said the measures would temporarily widen the deficit. “A stable France is in Europe's interest,” he said Tuesday on RTL Radio.

Government spokesman Benjamim Griveaux said on BFM Tuesday morning that the measures announced by Macron would cost between 8 billion and 10 billion euros. He said the government would offset some of the extra costs because some of the tax cuts would make the public administration more efficient.

At the same time, Macron refused to reverse path in other areas, saying his 2017 decision to abolish the wealth tax -- a major gripe of protesters -- was necessary to bring investment and jobs to France. He also promised a national debate on other issues, such of France's voting systems and immigration.

Initial Reaction

In a quick poll carried out by OpinionWay for LCI television, 50 percent said they weren't convinced by the president and 49 percent were. The protests should stop for 54 percent of respondents while 45 percent said they should continue. The poll questioned 991 people right at the end of the speech.

Yellow Vests weren't impressed. “He's throwing sand in our eyes, I don't think that will overwhelm the French,” Christophe Chalencon, an organizer from the south of France, said on LCI television. Jeremy Clement, another Yellow Vests leader, said the announcements were “positive, it's a big step forward,” but they still don't tackle needed deeper reforms.

Protesters barring roads near Strasbourg, Toulouse, Lyon, and Orleans told reporters for French media that they'll maintain their blockades.