Have the article read by OpenAI (Beta). Please note that AI translations may take some time to process.- 20 EU nations’ multi-annual fiscal plans pass; the Netherlands’ rejected.
- Draft budgets: eight countries fully in line, one flagged for risk, and the Netherlands fall short.
- New rules aim to balance flexibility and fiscal responsibility amid economic challenges.
The European Commission’s budget evaluation from Tuesday comes after the bloc’s debt and deficit rules were reformed earlier this year.
Next to annual draft budgets which have to be submitted by the Eurozone members, all European Union capitals now have to submit multi-annual spending plans to the Commission. The goal is to make European economies more robust and public finances more sustainable.
To limit government deficit and debt, the EU’s fiscal rules foresee that member countries shall not produce a deficit that is higher than three percent of its gross domestic product and not surpass the threshold of 60 percent of the gross domestic product in government debt.
In their Autumn Package, the Commission released the evaluation results of the medium term fiscal-structural plans (MTPs) of 21 EU member states as well as 17 assessments of draft budgets by Eurozone members which inform the MTPs of the countries.
In addition, the EU executive took a look at the eight countries currently facing an excessive debt procedure, evaluating their plans to get back on track with EU rules.
A facelift for fiscal rules: What is the medium-term fiscal structural plan?
The medium-term fiscal structural plan is replacing the EU’s stability programme and the national reform programme, standing at the core of the EU’s revised economic governance framework.
The EU’s Stability Pact was suspended between 2020 and 2023 to avoid a collapse of the European economy following the Covid-19 pandemic and the war in Ukraine. It was reactivated at the start of this year, but had been given a facelift to make it more flexible and pragmatic.
Budgetary trajectories are now tailored to each member state and margins for manoeuvre have been introduced for investment. They are spread over a four-year period, which can be extended to seven years to make the adjustment less abrupt, in exchange for reforms. Five countries – France, Finland, Romania, Spain and Italy – have requested and obtained such an extension.
The plan needs to meet requirements concerning net expenditure, as well as general government deficits and debts.
The financial penalties for non-compliance with the pact, previously unenforceable because they were too severe, have been reduced to make them easier to enforce.
Once the MTP is adopted by the Council of the EU, the expenditure path becomes binding for the member state during the period covered by the document. Its implementation will be assessed by the Commission regularly.
What is the outcome of the MTP assessments?
In their Tuesday publication, the Commission assessed the multi-annual plans of 21 member states who submitted their MTPs – giving passing grades to 20, failing one.
The passing countries: Croatia, Cyprus, Czechia, Denmark, Estonia, Finland, France, Greece, Ireland, Italy, Latvia, Luxembourg, Malta, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden.
While the majority of countries’ plans were accepted, the multi-annual plan of the Netherlands has been rejected.
Hungary’s plan is still being looked at while Austria, Belgium, Bulgaria, Germany and Lithuania have not yet submitted their plans due to general elections and the formation of new governments.
In Bulgaria, the submission has been delayed due to another series of snap parliamentary elections in late October and the absence of a regular government.
In an interview with Bulgarian news agency BTA, Executive Vice President of the European Commission for An Economy that Works for People, Valdis Dombrovskis, stressed the importance of Bulgaria keeping its budget deficit below three percent of the country’s GDP in the context of Bulgaria’s possible accession to the Euro area.
How are the Eurozone countries’ draft budgets for next year faring?
On Tuesday, the European Commission published its regular evaluation of the budget plans for 2025, assessing the submissions of 17 out of the 20 Eurozone members.
While some countries passed with flying colours, others have some work to do – and the Netherlands received another rejection.
In principle, EU countries have to send their draft budget for the following year to Brussels before October 15 each year, but this year the Commission has given governments more leeway because it is the first year in which the new European rules on fiscal discipline are applied.
- 8 “in line”: Croatia, Cyprus, France, Greece, Italy, Latvia, Slovakia, and Slovenia;
- 6 “not fully in line”: Estonia, Germany, Finland, Luxembourg, Malta and Portugal;
- 1 “risk not being in line”: Lithuania;
- 1 “not in line”: the Netherlands;
- 1 without concluding overall assessment: Ireland hasn’t received a concluding overall assessment but the Commission found that the country’s net expenditure growth is “expected to be above the ceiling”;
- 3 without submission: Austria, Belgium, Spain.
Richer members of the bloc, including Germany and the Netherlands, are traditionally avid defenders of the strict spending limits, compared to less affluent southern member countries.
Sluggish recovery from the economic fall-out of the Covid-19 pandemic and Russia’s war against Ukraine, however, make usually frugal countries struggle to keep their expenditure low.
Berlin’s cumulative spending is expected to exceed the allowed limits, the commission said. Germany’s three-party coalition government recently collapsed over differences on how to tackle the country’s economic problems. It is now expected that the budget for the next year will be adopted by the new German government.
France, too, is facing internal issues over money: Its belt-tightening draft budget for 2025 is at the centre of a political standoff that is threatening to topple the government in Paris.
The country iis one of the worst performers in Europe. With a public deficit expected to reach 6.2 percent of gross domestic product this year, it has the worst performance of the 27 member states, with the exception of Romania, and is a long way from the three percent ceiling authorised by EU rules.
French Prime Minister Michel Barnier struggles to get his economic plan past opposition from the political extremes. It has drawn criticism from French far-right figurehead Marine Le Pen, who has threatened to back a no-confidence motion if the plan is pushed through.
Countries with excessive deficits are watched closely
Countries under an excessive deficit procedure are closely monitored by the Commission while they realign their expenditures with EU law.
Since the summer, a total of eight countries is facing the EU’s excessive deficit procedure, namely France, Belgium, Hungary, Italy, Malta, Poland, Romania and Slovakia. Romania has been in the procedure since 2020.
The European Commission warned that Austria, whose deficit is expected at 3.6 percent this year, could join them.
These countries must take corrective measures to comply with the European Union’s budgetary rules in the future, or face fines.
Until now, the Commission has never dared to resort to financial sanctions, which are considered politically explosive. But that could change.
This article is published twice a week. The content is based on news by agencies participating in the enr.