The European Commission will open procedures against seven countries, including France, for “excessive deficit”

The European Commission will open procedures against seven countries, including France, for “excessive deficit”
The European Commission will open procedures against seven countries, including France, for “excessive deficit”

Italy records the highest deficit

Last year, these countries exceeded the public deficit limit set at 3% of gross domestic product (GDP) by the Stability Pact, which also limits debt to 60% of GDP. They will have to take corrective measures to respect the budgetary rules of the European Union in the future, under penalty of financial sanctions.

Formally, the European executive will propose to member states to open the procedures at an upcoming meeting of EU finance ministers on July 16. These rules were put on hold after 2020 because of the economic crisis linked to covid and then the war in Ukraine. They were reformed and reactivated this year. “This does not mean a return to normal because we are not living in normal times and certainly not a return to austerity, because that would be a terrible mistake,” said Paolo Gentiloni, calling for “budgetary prudence” in the face of geopolitical risks.

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%).

Sanctions never before applied

The Stability Pact in principle provides for financial sanctions of 0.1% of GDP per year for countries that do not implement the imposed corrections, or nearly 2.5 billion euros in the case of France. . In reality, these politically explosive punishments were never applied.

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France, whose debt reaches 110% of GDP, has been in an excessive deficit procedure most of the time since the creation of the euro at the turn of the 2000s. However, it emerged from it in 2017. “When a member state like France exceeds the deficit threshold of 3% 14 times in fifteen years, we can no longer speak of exceptional circumstances. Such blatant disregard for budgetary rules should have prompted the Commission to act much sooner,” scoffed German conservative MEP Markus Ferber.

The promise of Paris put to the test in the legislative elections

France, in the sights of rating agencies, has been in political crisis since the dissolution of the National Assembly decided by President Emmanuel Macron after his camp’s defeat in the European elections on June 9. The far right and left oppositions, leading in the polls, plan to open the spending tap wide but also to reverse the emblematic pension and labor market reforms recommended by Brussels.

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Enough to compromise Paris’ promise, already considered not very credible, to get back on track in four years. Brussels is counting on a deficit of 5.3% this year and 5% in 2025, while for the European Union as a whole the ratio should return to 3% this year. “Our objective is to return below 3% in 2027 provided that a new government does not take a different direction,” we assure Bercy.

Recommendations expected for November

The Italian Minister of the Economy, Giancarlo Giorgetti, for his part, affirms that he is following a “course of responsibility and sustainable public finances which is appreciated by the markets and the institutions of the EU”. “We’re going to continue like this,” he said. Italy’s debt is one of the highest in the EU, at 137% of GDP.

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European rules require countries with excessive deficits to reduce the deficit by a minimum of 0.5 points per year, which requires a massive effort of austerity. By September 20, the Twenty-Seven will have to send their multi-annual budgetary plans to Brussels, which will be scrutinized by the Commission and the Council, the body of the Member States. In November, Brussels will give its recommendations for the restoration of public accounts.



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