Security Costs

Au Revoir Austerity

France terror DPA
French soldiers guarding the Eiffel Tower in Paris.
  • Why it matters

    Why it matters

    • The European Commission appears to be giving its tacit approval of France’s decision to ignore the budget requirements of the Stability and Growth Pact.
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  • Facts

    Facts

    • Under the Stability and Growth Pact, E.U. countries must remain within a deficit to GDP ratio of 3 percent.
    • France has already been given three deferrals to bring its budget into compliance with the Stability Pact rules.
    • Two other countries, Italy and Austria, have taken advantage of the relaxation of the 3-percent deficit rule.
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    Audio

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The terrorist attacks in Paris are already having wider political and economic repercussions, including within the European Monetary Union.

French President François Hollande no longer wants to adhere to the euro zone’s strict austerity requirements.

France must significantly increase spending on defense and domestic security and can therefore no longer fulfill the requirements of the Stability Pact, the president said in Paris on Monday.

“The security pact takes precedence over the stability pact,” Mr. Hollande said. “France is at war.”

On Tuesday France officially requested aid from its E.U. partners under a security clause in the Lisbon Treaty.

The statement from Mr. Hollande probably means that France will remain a deficit sinner for some time to come.

The European Union has already granted Paris a deferral three times to bring its nominal deficit below the limit of 3 percent of GDP. The latest grace period expires in 2017, but France apparently no longer intends to comply with the deadline. It is still unclear whether the European Commission will tolerate the latest violation of E.U. budget rules.

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