On Friday, France, Italy, and five other European Union (EU) nations were formally placed under scrutiny for breaching the bloc’s budgetary regulations. This marks the beginning of a potentially unprecedented process that could lead to penalties unless these countries implement corrective measures.
The Council, representing the 27 member states, announced, “Today the Council adopted decisions establishing the existence of excessive deficits for Belgium, France, Italy, Hungary, Malta, Poland, and Slovakia.”
This initiative, known as the “excessive deficit procedure,” requires the implicated countries to negotiate a strategy with Brussels to align their debt or deficit levels with EU fiscal rules. These seven nations had deficits exceeding three percent of their gross domestic product (GDP), contravening the bloc’s fiscal regulations.
France recorded a deficit of 5.5 percent in 2023. However, reducing this deficit may prove challenging due to political uncertainty following a snap election won by a left-wing coalition advocating for increased public spending.
Italy, with the highest deficit-to-GDP ratio of 7.4 percent last year, was followed by Hungary (6.7 percent), Romania (6.6 percent), and Poland (5.1 percent).
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Additionally, the Council noted that Romania had not made effective efforts to address its excessive deficit, despite being under this procedure since 2020, and would continue to be monitored closely.
The next step requires the affected countries to submit medium-term plans by September, detailing how they will rectify their budgetary breaches.
In November, the European Commission will evaluate these plans, providing specific guidelines on returning to fiscal health.
This marks the first instance of the EU reprimanding member states since suspending these rules after the 2020 coronavirus pandemic and the subsequent energy crisis triggered by Russia’s war on Ukraine. During the suspension, states supported businesses and households with public funds.
Over the two-year suspension period, the EU revised its budgetary rules to allow more flexibility for investment in critical areas like defense. However, the core objectives remain unchanged: national debt should not exceed 60 percent of GDP, and public deficits must stay below three percent.
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Countries that fail to address their excessive deficits could theoretically face fines amounting to 0.1 percent of GDP annually until they take corrective action.
In practice, though, the European Commission has never imposed such fines, fearing that doing so might lead to unintended political repercussions and economic harm for the member states involved.