The European Commission has identified fiscal irregularities in eight member countries, including Belgium, France, Italy, Hungary, Malta, Poland, Slovakia, and Romania. These countries were warned for their excessive budget deficits, with Romania facing the more serious charge of not taking heed of previous warnings over profligacy. Romania, in particular, is expected to have the biggest deficit in the EU next year at 7% of GDP. Other countries such as Spain, Finland, Slovenia, and Czechia narrowly escaped censure, with their breaches of budget norms seen as minor or temporary. The EU’s fiscal rules state that national fiscal deficits should not exceed 3% of GDP, with debt kept under 60%.
The Commission’s move is expected to be particularly contentious in France, where the credit rating has been downgraded, and snap legislative elections are scheduled for the end of June. Marine Le Pen, leader of the far-right and eurosceptic National Rally, has proposed reducing the retirement age and cutting VAT on fuel, leading to concerns from the current finance minister about a potential debt crisis. Belgium also faces political turmoil, with liberal Prime Minister Alexander De Croo announcing his resignation after a disappointing election result. These developments come at a sensitive time as the EU’s lead officials, including Commission President Ursula von der Leyen, seek renomination for a second term in office.
The reports from the European Commission mark the first step in a lengthy procedure that could lead to fines for countries that jeopardize the euro’s financial stability. The fiscal rules were temporarily suspended in 2020 due to the Covid crisis and subsequent economic interventions made by governments. However, a more flexible set of budget constraints was agreed upon earlier this year, allowing for increased spending on climate change or defense. The Commission’s latest intervention opens a months-long process of discussion and analysis, with finance ministers expected to endorse formal recommendations for countries with excessive deficits to correct their imbalances in December.
The EU’s long-standing fiscal rules have been a source of political tension, with northern member states such as Germany and the Netherlands reluctant to pay for what they perceive as reckless spending in countries like Greece or Italy. The current situation highlights the ongoing challenges in balancing national budgets and debt levels within the EU. Countries that fail to address their fiscal imbalances could face fines and other penalties from the EU. The upcoming legislative elections in France and the potential reappointment of top EU officials add further complexity to an already challenging economic situation.
The EU is urging member states to submit national fiscal structural plans that address debt and deficit levels and reflect the Commission’s recommendations. The fiscal intervention by the Commission comes at a time of economic uncertainty and political change within the EU. The need for countries to address their fiscal imbalances and adhere to EU rules is crucial for the stability and competitiveness of the eurozone. The outcome of the discussions and analysis following the Commission’s move will have significant implications for the economic future of the EU and its member states.
