European Commission Warns Eight Countries Over Budget Deficits
The European Commission has formally warned eight member countries about their excessive budget deficits, reinstating a controversial fiscal oversight mechanism suspended since the pandemic. This move has significant implications for France, Italy, and six other nations as they navigate economic challenges and political pressures.
The countries in question include Belgium, France, Italy, Hungary, Malta, Poland, Slovakia, and Romania. While the first seven have been reprimanded for not maintaining balanced budgets, Romania faces a more severe accusation of ignoring previous EU warnings about fiscal excesses.
Timing and Political Sensitivity
This warning arrives at a critical moment. France is on the cusp of key legislative elections, and several top EU officials are seeking reappointment. The process initiated by the Commission could eventually lead to financial penalties for these indebted nations.
EU Commissioner Valdis Dombrovskis emphasized the broader economic impact of these deficits, stating, “Longstanding structural challenges are holding back the EU’s competitiveness. We look forward to receiving national fiscal structural plans from Member States that bring down debt and deficit and reflect today’s recommendations.”
In 2020, Romania was directed by the EU Council to “rigorously implement” measures to correct its fiscal imbalance by 2022. However, Romania is projected to have the largest deficit in the EU next year, estimated at 7% of GDP. This places Romania in a unique position, as it is the only EU country currently deemed to have an excessive macroeconomic imbalance. EU officials have repeatedly called for reforms in taxation and public sector wages to address this critical issue.
Other Countries’ Situations
Several countries have narrowly avoided censure. Estonia’s increased spending is attributed to defense priorities, while Spain, Finland, Slovenia, and Czechia are considered to have minor or temporary breaches of budget norms.
The EU’s fiscal rules, established alongside the euro in the 1990s, stipulate that national fiscal imbalances should not exceed 3% of GDP, and overall debt must remain below 60%. These rules have often sparked political tensions, especially between fiscally conservative northern states like Germany and the Netherlands, and southern states such as Greece and Italy, which are perceived to engage in reckless spending.
Implications for France
The Commission’s warning is particularly sensitive for France, which recently experienced a credit rating downgrade. The timing coincides with the upcoming legislative elections at the end of June. Marine Le Pen, leader of the far-right National Rally, has proposed reducing the retirement age and cutting VAT on fuel. In contrast, Bruno Le Maire, finance minister for President Emmanuel Macron, warned of a potential “debt crisis” resulting from Le Pen’s program, drawing a parallel to the market turmoil following British Prime Minister Liz Truss’s brief tenure and her budget giveaway in 2022.
Belgium, projected to have a nearly 5% deficit next year, is also facing political instability. Liberal Prime Minister Alexander De Croo announced his resignation following a disappointing election result, adding to the country’s economic and political challenges.
The European Commission’s renewed fiscal oversight underscores the ongoing economic challenges within the EU and the political sensitivities surrounding budget deficits. As member states submit their national fiscal structural plans, the focus will be on how these countries address the Commission’s recommendations and stabilize their economic positions.
