The European Union is expected to reprimand nearly a dozen governments, including France and Italy, on Wednesday for their excessive spending after new budget rules came into effect this year.
It comes at a particularly difficult time for France, where both the far left and far right are piling on their spending promises ahead of snap polls following President Emmanuel Macron’s crushing EU election defeat.
This will be the first time Brussels has reprimanded countries since the EU suspended rules following the 2020 Covid pandemic and the energy crisis caused by the war in Ukraine, when states supported businesses and households with public money.
The EU spent two years during the suspension revising fiscal rules to make them more workable and allow more room for investment in critical areas such as defense.
But two sacred goals remain: the national debt should not exceed 60 percent of national output, with a government deficit – the shortfall between government revenues and expenditures – of no more than three percent.
The European Commission will publish assessments of the budgets and economies of the 27 EU countries on Wednesday, and is likely to point out that around 10 countries, including Belgium, France and Italy, have deficits of more than three percent.
The EU’s executive branch has threatened to launch excessive deficit procedures, triggering a process that forces an over-indebted country to negotiate a plan with Brussels to get back on track.
Such a move would have to be approved by EU finance ministers in July.
Countries that fail to remedy the situation could theoretically be hit with fines of 0.1 percent of gross domestic product (GDP) per year until action is taken to address the violation.
In practice, however, the commission has never gone so far as to impose fines, fearing that doing so could have unintended political consequences and harm a state’s economy.
– Breaking with the past –
The EU countries with the highest deficit ratio last year are Italy (7.4 percent), Hungary (6.7 percent), Romania (6.6 percent), France (5.5 percent) and Poland (5.1 percent). .
They will “probably” face excessive deficit procedures, just like Slovakia, Malta and Belgium, which also have deficits of more than three percent, said Andreas Eisl, an expert at the Jacques Delors Institute.
For three other countries, the picture is complicated, Eisl said. Spain and the Czech Republic exceeded the three percent mark in 2023, but should catch up again this year.
Meanwhile, Estonia’s deficit ratio is above three percent, but its public debt is around 20 percent of GDP, well below the 60 percent limit.
The committee will look at states’ data in 2023, but “will also take into account expected developments for 2024 and beyond,” the expert told AFP.
Member states must send their multi-annual spending plans to the EU by October, after which the commission will publish its recommendations in November.
Under the new rules, countries with an excessive deficit must reduce it by 0.5 points annually, which would require a huge effort at a time when states need to invest money in the green and digital transitions, as well as defense.
The rules known as the Stability and Growth Pact, adopted in 1997 before the arrival of the single currency in 1999, seek to prevent lax fiscal policy – a concern of Germany – by establishing a strict goal of balanced accounts.
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