France, Italy, Belgium and five others were targeted by fellow member states after the European Commission warned of ballooning budget shortfalls.
The EU’s Council today (26 July) opened formal proceedings against multiple member states deemed to have shortfalls in domestic budgets.
The move follows a warning from the European Commission that deficits were set to soar as high as 7% of the economy, after Brussels turned a blind eye for several years due to Covid.
“Member states must comply with budgetary discipline,” said a statement from the Council, which added that the process would entail “enhanced scrutiny” of those in breach.
The Council, which groups the EU’s 27 member states, sent the legal warning to Belgium, France, Italy, Hungary, Malta, Poland and Slovakia, and agreed to continue a legal procedure that’s applied to Romania since 2020.
The EU’s fiscal rules, introduced alongside the common euro currency in the 1990s, say the imbalance in national fiscal positions shouldn’t be over 3% of GDP, with overall debt kept under 60%.
Political dynamite
Those rules have long proved political dynamite, as northern member states such as Germany and the Netherlands are reluctant to pay for what they see as reckless spending in Greece or Italy.
The move occurs as both France and Belgium, in both of which public debt exceeds 100% of GDP, attempt to form governments from splintered coalitions.
Two weeks ago, France’s Court of Auditors said the state of public finances was “alarming”, and finance minister Bruno Le Maire, part of Gabriel Attal’s caretaker government, may step down imminently given the drubbing taken in a June legislative election.
It also represents a new front in the war between Brussels and Giorgia Meloni’s right-wing government.
On Wednesday, the Commission berated press freedom in Italy, after Meloni filed legal cases against individual reporters who criticised or mocked her.
Post-pandemic rules
The EU’s deficit framework, known as the Stability and Growth Pact, was abandoned in 2020 when the Covid crisis, and subsequent energy price explosion, led governments to make unprecedented and expensive economic interventions.
After much haggling, member states earlier this year agreed on a more flexible set of budget constraints to apply as of this year, allowing more wiggle room for spending on climate change or defence.
That late agreement means timelines for settling budget policy have been truncated this year, perhaps explaining why the EU adopted its warning on the afternoon of the day when many officials depart for summer holidays.
Ministers are expected to endorse formal recommendations for profligate countries to bring deficits back down in December.
Brussels officials have already been in touch with finance ministries in affected countries to recommend trajectories for correcting the imbalance, implying politically painful tax rises or spending cuts.
