Daily Reports
The European Commission is poised to initiate disciplinary procedures for excessive public deficits against approximately ten EU countries, including France and Italy, as nearly half of EU nations have surpassed the Stability Pact's 3% of GDP limit for public deficits. The Commission's forthcoming reports on the economic and budgetary status of the 27 EU states is set to further emphasize these concerns.
France's situation is particularly troubling, as the country grapples with political turmoil following the National Assembly's dissolution by President Emmanuel Macron after his defeat in the European elections on June 9. France saw its public deficit soar to 5.5% of GDP in 2023, and the nation's borrowing rates have spiked, leading to instability in Paris' financial center. The political landscape is equally voluble, with far-right and left-wing opposition factions vowing to escalate spending and undo pivotal pension and labor market reforms advised by Brussels.
The European executive has been signaling for months its intention to enforce excessive deficit procedures against countries flouting common budgetary norms, reactivated this year after a hiatus due to the Covid-19 economic downturn and the war in Ukraine. The updated Stability Pact stipulates financial penalties of 0.1% of GDP per annum for non-compliant countries, potentially costing France around 2.5 billion euros annually. Historically, these sanctions have seldom been applied, given their politically sensitive nature.
Addressing budget deficits in an environment of low growth and geopolitical strife presents substantial challenges. Public finances are strained by commitments to support Ukraine in the conflict against Russia and to fund green transition initiatives aimed at combating climate change.
In addition to France and Italy, other nations recorded significant deficits in 2023, including Hungary (6.7%), Romania (6.6%), and Poland (5.1%). Slovakia, Malta (4.9%), and Belgium (4.4%) are also anticipated to face disciplinary actions. Spain and the Czech Republic exceeded the 3% threshold but aim to rectify this in 2024. Estonia, despite breaching the 3% limit, maintains a low public debt of about 20% of GDP, well below the 60% threshold, which might influence the Commission's stance.
The enforcement of these procedures underscores upcoming political clashes, particularly between prominent EU members such as Rome and Paris versus the European Commission and budget disciplinarians like Germany. The overarching European fiscal rules mandate that countries with excessive deficits achieve at least a 0.5-point reduction in public deficit annually, necessitating significant austerity measures.
- The Minister Delegate in charge of Public Accounts, Thomas Cazenave, indicated that France's budgetary slippage was influenced by several international factors, including the slowdown in China, the war in Ukraine, and weaker growth among European partners like Germany. To address these economic challenges, the French government implemented a savings plan of 10 billion euros in the 2024 budget, announced by Bruno Le Maire. However, Bruno Le Maire remains committed to reducing France's public deficit below 3% by 2027.
- The European Stability Pact, initially adopted in 1997 ahead of the single currency's introduction in 1999, was primarily driven by Germany's concern to deter member states from adopting lenient budgetary policies. The Pact mandates countries under excessive deficit to make substantial adjustments, with a minimum reduction of 0.5 points in public deficit per year.
- Historically, France has often been under excessive deficit procedure since the creation of the euro, although it had managed to stay out of it since 2017. The reactivation of these procedures and the attached sanctions represent a significant shift in the enforcement of EU fiscal policies.
