The Commission blames Paris for repeated public deficits. Around ten other member states are concerned.
It’s time to take stock in Brussels: the European Commission will publish reports on Wednesday on the economic and budgetary situation of each of the 27 countries of the European Union. It must note that nearly ten of them, including France and Italy, exceeded the limit of 3% of GDP for public deficits set by the Stability Pact last year.
The case of France is particularly worrying: the country, in the sights of rating agencies, has been in political crisis since the dissolution of the National Assembly on June 9. Borrowing rates in Europe’s second-largest economy have suddenly increased and the Paris financial center has fallen last week due to instability.
The far-right and left oppositions, leading in the polls, also plan to reverse the emblematic pension and labor market reforms recommended by Brussels. Enough to further compromise the already implausible promise of returning below the 3% threshold for the deficit in 2027.
2.5 billion euros fine… in theory
The European executive has warned for several months that it would launch excessive deficit procedures this year against countries violating the common budgetary rules, reformed and reactivated this year. They were put on hold after 2020 because of the economic crisis linked to Covid and then the war in Ukraine.
The new Stability Pact provides in principle for financial sanctions of 0.1% of GDP per year for countries which do not implement the imposed corrections. For example, they would amount to nearly 2.5 billion euros for France.
In reality, these politically explosive punishments have never been applied so as not to push countries already in difficulty further. Since the creation of the euro, France has been in excessive deficit procedure most of the time. However, she had been out since 2017.
Italy and Hungary in the lead
The highest EU deficits were recorded last year in Italy (7.4% of GDP), Hungary (6.7%), Romania (6.6%), France (5. 5%) and in Poland (5.1%).
In addition to these five countries, procedures for excessive deficits should also concern Slovakia, Malta (4.9%) and Belgium (4.4%), notes Andreas Eisl, expert from the Jacques Delors Institute. Three others are in a gray area, he explains.
Spain and the Czech Republic exceeded 3% in 2023 but plan to get back on track this year. Estonia has also crossed 3% but its public debt at around 20% of GDP is low and well below the limit of 60% of GDP set by the Stability Pact, unlike the other countries cited.
“The Commission will decide on the basis of the figures for 2023 but will also take into account the developments expected for 2024 and the following years,” underlines Mr. Eisl.
These procedures suggest new political standoffs between Rome and Paris, on the one hand, and the Commission and the countries most concerned about compliance with budgetary rules, including Germany, on the other.
European rules impose on countries with excessive deficits a minimum reduction in the public deficit of 0.5 points per year, which requires a massive effort at budgetary austerity.
The Stability Pact was adopted in 1997, with a view to the arrival of the single currency on January 1, 1999. Responding to Germany’s concern to prevent member countries from pursuing lax budgetary policies, it sets the objective accounts in balance.
