The European Commission is cracking down on excessive government spending in eleven EU countries, including France and Italy, as they face potential reprimands for running budget deficits larger than the 3 per cent of GDP threshold allowed under EU rules. The commission will decide in June whether to launch excessive deficit procedures (EDP) in each case, with fines looming for eurozone countries that fail to course-correct.
France, Italy, and Belgium are among the countries almost guaranteed to face sanctions, as their deficits exceed 3 per cent and they do not plan to return to compliance in the near future. The fiscal rules, which were suspended during the Covid-19 pandemic, are now being reapplied after being reformed to allow more leeway for defense investments.
The European Central Bank has added teeth to the new rules by warning that countries could be excluded from its bond-buying program if they do not address EDP recommendations. Some countries, such as Spain and the Czech Republic, argue that their deficits will return to or below 3 per cent this year and should not be punished for a temporary breach.
Non-eurozone member Romania is currently the only country in an EDP, while Poland and Romania, along with eurozone member Slovakia, are seeking exemptions due to increased defense spending prompted by Russia’s invasion of Ukraine. The commission will prescribe budgetary adjustments in the autumn, with the 3 per cent of GDP threshold remaining the key parameter for starting an EDP.