The European Union is expected on Wednesday to reprimand nearly 10 governments, including France and Italy, for excessive spending after new budget rules come into effect this year.
It comes at a particularly difficult time for France, where both the far left and far right are piling up spending promises ahead of snap polls triggered by President Emmanuel Macron’s landslide election defeat.
It will be the first time Brussels has reprimanded nations since the EU suspended rules following the 2020 Covid pandemic and the energy crisis sparked by the Ukraine war, as 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 give more room for investment in critical areas such as defence.
But two sacred goals remain: a state’s debt should not exceed 60 percent of national output, with a public deficit — the gap between government revenue and spending — of no more than 3 percent.
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The European Commission will publish assessments of the budgets and economies of the 27 EU states on Wednesday and is likely to point out that around 10 countries, including Belgium, France and Italy, have deficits higher than 3%.
The EU’s executive arm has threatened to launch excessive deficit procedures, which begin a process that forces a debt-overloaded country to negotiate a plan with Brussels to get back on track.
Such a move would need approval from EU finance ministers in July.
Countries that fail to correct the situation can theoretically be fined 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 that far in imposing fines — fearing it could cause unwanted political consequences and damage a state’s economy.
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A break with the past
The EU countries with the highest deficit-to-GDP ratios last year are Italy (7.4%), Hungary (6.7%), Romania (6.6%), France (5.5%) and Poland (5.1%).
They will “likely” face excessive deficit procedures, along with Slovakia, Malta and Belgium, which also have deficits above 3%, according to Andreas Eisl, an expert at the Jacques Delors Institute.
The picture is complicated for three other countries, Eisl said. Spain and the Czech Republic exceeded the 3 percent threshold in 2023, but should return this year.
Meanwhile, Estonia’s deficit-to-GDP ratio is over 3%, but its debt is around 20% of GDP, well below the 60% threshold.
The commission will examine the states’ data in 2023, but “will also take into account the developments expected for 2024 and beyond,” the expert told AFP.
Member states must send their multi-year spending plans by October for the EU to consider, and the Commission will then publish its recommendations in November.
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Under the new rules, countries with an excessive deficit must reduce it by 0.5 points each year, which would require a huge commitment at a time when states need to pour money into the green and digital transition, as well as defence.
Adopted in 1997 before the arrival of the single currency in 1999, the rules known as the Stability and Growth Pact seek to prevent loose fiscal policies — a concern of Germany — by setting a strict target of balanced accounts.
Source: AFP