Excessive deficit procedure initiated
EU Commission counts France and Italy
19.06.2024, 11:44 a.m.
Seven EU countries are violating the European Union’s new debt rules, including France and Italy. The EU Commission is now opening criminal proceedings against the countries because of their excessive deficits.
The European Commission is initiating criminal proceedings against France, Italy and five other EU countries for excessive new debt. The EU Commission also believes that Belgium, Hungary, Malta, Poland and Slovakia have excessive budgetary deficits that require an excessive deficit procedure, according to the Brussels authority responsible for compliance with EU debt rules. Proceedings are already pending against Romania. With an expected deficit ratio of 1.6 percent, Germany is not facing any trouble with Brussels this year.
France is currently under special observation on the financial markets: President Emmanuel Macron’s decision to hold new elections has caused turbulence, as there is speculation about a victory for the eurosceptic right in the parliamentary elections. Finance Minister Bruno Le Maire has warned that the country could slide into a financial crisis as a result of the new elections.
The reformed EU Stability Pact came into force at the end of April. It allows member states to take on new debt of a maximum of three percent of gross domestic product (GDP). The EU Commission’s recommendation to initiate an excessive deficit procedure must still be approved by the EU finance ministers in July, which is considered a formality. In November, Brussels will then present proposals on how quickly the deficit should be reduced.
The excessive deficit procedures were recently suspended due to the Corona crisis and the consequences of the Russian attack on Ukraine. If criminal proceedings are initiated, a country must take countermeasures to reduce debt and deficit. The primary aim of this is to ensure the stability of the eurozone. The aim of the excessive deficit procedure is to get countries to manage their finances soundly. In theory, penalties running into the billions are possible for persistent violations. In practice, however, these have never been imposed.
Reform just came into force
The EU Commission monitors whether EU countries comply with the rules on budget deficits and national debt. According to the authority, twelve EU countries did not comply with the upper limit for their deficit last year or are forecast to exceed it this year.
The reason why new proceedings were only initiated against seven countries is that the Commission takes various factors into account. These include whether the deficit limit has only been exceeded to a very small extent, whether it can be considered exceptional due to special economic circumstances or whether more investment has been made in defence.
The rules governing national debt and deficits, also known as the Stability and Growth Pact, were recently reformed after years of debate. However, the basic rule remains that a member state’s debt level may not exceed 60 percent of economic output. At the same time, the general government financing deficit – the difference between public budget revenue and expenditure, which is to be covered primarily by loans – must be kept below three percent of gross domestic product (GDP).
To ensure sound finances, each country must draw up a four-year budget plan together with the EU Commission, which is responsible for supervision. Under certain conditions, such as if a country commits to growth-enhancing reforms and investments, the plan can be extended to seven years. The EU Commission can also temporarily take the increase in interest payments into account when calculating adjustment efforts.