France, Italy and five other European Union countries were placed into formal proceedings on Friday for breaching EU budget rules, a move that could expose them to unprecedented fines if they do not take corrective measures.
“Today the Council adopted a decision establishing the existence of excessive deficits for Belgium, France, Italy, Hungary, Malta, Poland and Slovakia,” the body representing 27 member states said.
Known as the “excessive deficit procedure,” it triggers a process that forces a country to negotiate a plan with Brussels to get its debt or deficit levels back on track.
All seven countries had deficits – the difference between government revenue and spending – of more than three percent of GDP, a violation of the bloc’s fiscal rules.
France’s deficit is set to reach 5.5 percent in 2023, but it appears likely that reducing it will be difficult as political uncertainty persists following the results of a snap election in which a left-wing coalition demanded more 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 a procedure being launched against it in 2020, and would therefore remain monitored.
As a next step, countries must send medium-term plans by September on how they will fix the breach.
The European Commission will then present its evaluation of the plans in November, detailing the path to be taken to regain financial health.
It is the first time Brussels is reprimanding EU states since the bloc suspended rules following the 2020 coronavirus pandemic and an 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 reforming budget rules to allow more room for investment in key sectors such as defence.
But two sacred objectives remain: a state’s debt should not exceed 60 percent of national output, and the public deficit should not exceed three percent.
Countries that fail to rectify the situation could theoretically be fined 0.1 percent of gross domestic product (GDP) per year until action is taken to remedy the violations.
However, in practice the Commission never considered imposing a fine, as it feared this could produce unintended political consequences and harm the state’s economy.
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