EU reprimands France and six other EU countries for breaking budget rules

Brussels: France, Italy and five other EU countries were placed in a formal procedure on Friday for violating the bloc’s budget rules, a step that could lead to unprecedented penalties unless they take corrective measures.

“Today the Council adopted decisions establishing the existence of excessive deficits for Belgium, France, Italy, Hungary, Malta, Poland and Slovakia,” the body representing the 27 member states said.

Known as an “excessive deficit procedure”, it kickstarts a process forcing a country to negotiate a plan with Brussels to get their debt or deficit levels back on track.

The seven countries had deficits — the gap between government revenue and spending — above three percent of gross domestic product, in violation of the bloc’s fiscal rules.

France’s deficit reached 5.5 percent in 2023, but it appears that bringing it down would be difficult because of political uncertainty following the results of a snap election that was won by a leftwing coalition demanding much higher public spending.

The EU countries with the highest deficit-to-GDP ratios last year were Italy (7.4 percent), Hungary (6.7 percent), Romania (6.6 percent) and Poland (5.1 percent).

The council also said Romania had “not taken effective action” against its excessive deficit, despite having a procedure opened against it in 2020 and would therefore be kept under watch.

As a next step, the countries will have to send medium-term plans by September about how they will rectify the breach.

Then the European Commission in November will deliver assessments of the plans with details on the route they must take to return to fiscal health.

This is the first time Brussels is rebuking EU states since the bloc suspended the rules after the 2020 coronavirus pandemic and the energy crisis triggered by Russia’s war on Ukraine, as states propped up businesses and households with public money.

The EU spent two years during the suspension to reform the budget rules to give greater leeway for investment in critical areas like defence.

But two sacred objectives remain: a state’s debt must not go higher than 60 percent of national output, with a public deficit of no more than three percent.

Countries failing to remedy the situation can in theory be hit with fines of 0.1 percent of gross domestic product (GDP) per year, until action is taken to address the violation.

In practice, though, the commission has never gone as far as levying fines, fearing it could trigger unintended political consequences and hurt a state’s economy.