The European Commission might threaten legal action against France, Italy, Belgium, and other EU member states on Wednesday due to their increasing new debt levels.
The EU executive arm anticipated that several EU countries would violate regulations regarding budget deficits and national debt levels, as per an economic forecast released in May. In addition to addressing excessive new debt levels, the commission was also anticipated to propose the design of the European Union’s budget for 2025.
The EU suspended the debt and deficit regulations during the economic fallout of the COVID-19 pandemic and the full-scale Russian invasion of Ukraine. Following negotiations and reforms, the rules are now reinstated.
Any EU country that surpasses the debt and deficit limits faces potential legal consequences if the commission chooses to take action. This measure is primarily aimed at ensuring the stability of the eurozone. The excessive deficit procedure is designed to guide countries toward a solid financial position. This initiates a process where an EU country must implement corrective actions to decrease its debt and deficit under the commission’s supervision for four years.
Under certain conditions, such as when a country commits to growth-promoting reforms and investments, the plan can be extended to seven years. The commission is also able to consider the temporary increase in interest payments when determining the adjustment efforts. As per the reformed rules, EU member states are not allowed to amass debt exceeding 60% of gross domestic product (GDP). Highly indebted EU countries, with debt levels surpassing 90% of GDP, are required to decrease their debt ratio by one percentage point annually.
Under the reformed rules, countries with debt levels between 60% and 90% are required to reduce their debt ratio by 0.5 percentage points. Additionally, the general government deficit, which represents the difference between income and expenditure of the public budget, must be maintained below 3% of GDP.
France, Italy, and Belgium are projected to exceed this deficit limit in 2024, alongside Austria, Finland, Estonia, Hungary, Malta, Poland, Romania, and Slovakia. Spain’s deficit stands at precisely -3.0%.
