The European Commission has issued a warning to France, Italy, Belgium, and other member states regarding their excessive debt accumulation and potential violations of budget deficit limits. This action follows an economic forecast published in May, which projected that several countries would breach EU regulations on national debt and budget deficits.
With the economic disruptions caused by the COVID-19 pandemic and the Russian invasion of Ukraine, the EU had temporarily suspended its debt and deficit rules. However, these regulations have now been reinstated with some reforms. The European Commission is now poised to enforce these rules, potentially initiating legal proceedings against countries that fail to comply.
The primary goal of these regulations is to maintain the stability of the eurozone by ensuring that member states achieve sound financial positions. Countries found in violation of the rules will be required to implement corrective measures under the Commission’s supervision for a period of four years. This period can be extended to seven years if the country commits to reforms and investments that promote growth. Additionally, the Commission may consider the impact of increased interest payments when assessing a country’s adjustment efforts.
The reformed rules stipulate that EU member states must not exceed a debt level of 60% of their gross domestic product (GDP). Countries with debt levels above 90% of GDP are required to reduce their debt ratio by one percentage point annually, while those with debt levels between 60% and 90% must reduce their debt ratio by 0.5 percentage points annually. Furthermore, the general government deficit, defined as the gap between income and expenditure covered by loans, must be kept below 3% of GDP.
According to the Commission’s forecast, several countries are expected to breach this deficit limit in 2024, including France (5.5%), Italy (4.4%), and Belgium (4.4%). Other countries with projected high deficits include Austria, Finland, Estonia, Hungary, Malta, Poland, Romania, and Slovakia. Spain is projected to be at exactly -3.0%.
In addition to addressing the debt and deficit issues, the Commission is expected to propose a design for the European Union’s budget for 2025. This comprehensive approach aims to ensure long-term financial stability across the EU.