Commission to punish EU countries for excessive new debt

The European Commission could threaten France, Italy and Belgium, among other EU member states, on Wednesday, with legal action over their accumulation of excessive new debt.

The EU executive arm expected multiple EU countries to breach regulations on budget deficits and national debt levels, according to an economic forecast published in May.

As well as a decision on excessive new debt levels, the commission was also expected to make a proposal to design the European Union’s budget for 2025.

The EU decided to suspend the debt and deficit regulations in the economic fallout of the COVID-19 pandemic and the full-scale Russian invasion of Ukraine.

With the rules now back in place, after some reforms were negotiated, any EU country that breached the debt and deficit limits risked legal punishment, should the commission decide to act.

This is primarily to ensure the stability of the eurozone with the aim of the excessive deficit procedure to bring countries to a sound financial position.

This started a process where an EU country must introduce countermeasures to reduce its debt and deficit under the supervision of the commission for four years.

Under certain conditions, for example if a country commits to growth-promoting reforms and investments, the plan can be extended to seven years.

The commission can also temporarily take into account the increase in interest payments when calculating the adjustment efforts.

According to the reformed rules, EU member state may not accumulate debt in excess of 60 per cent of gross domestic product (GDP).

Highly indebted EU countries with debt levels over 90 per cent of GDP have to reduce their debt ratio by one percentage point annually,

It also said that countries with debt levels between 60 and 90 per cent by 0.5 percentage points to also reduce debt ration.

In addition, the general government deficit namely the gap between income and expenditure of the public budget, which was primarily covered by loans, must be kept below 3 per cent of GDP.

According to the commission’s economic forecast, France at 5.5 per cent, Italy at 4.4 per cent and Belgium at 4.4 per cent will breach this deficit limit in 2024.

Also included were Austria, Finland, Estonia, Hungary, Malta, Poland, Romania and Slovakia also have deficits that were too high, according to the rules.

Spain is at exactly -3.0 per cent.