EU initiates potential fiscal scrutiny against Italy and France over budgetary concerns
Finances ministers across Europe anticipate reaching a consensus in the middle of July, a decision unprecedented since the onset of the Corona virus pandemic, to initiate penalties against countries surpassing budget deficit limits. The seven nations facing sanctions could be hit with heavy fines in the worst-case scenario, a penalty that hasn't been imposed before.
For France, the warning letter from Brussels arrives at a delicate political juncture: President Emmanuel Macron had planned fresh elections for the National Assembly on June 30, due to substantial losses in the European elections. Based on polls, the right-wing populists spearheaded by Marine Le Pen could emerge as the most powerful group.
The European debt regulations allow member states a maximum new borrowing of 3% of the Gross Domestic Product (GDP) and a combined debt of no more than 60% of the GDP. France surpasses this with 5.5%. It's projected that Paris will only slightly scale back the deficit this year according to Brussels projections.
However, the EU is deeply worried about Italy's financial state: Under post-fascist Giorgia Meloni's government, the country recorded the highest new borrowing in the EU in 2023 at 7.4% of the GDP. The deficit is expected to decrease to 4.4% this year according to the Commission, but then increase again. Italy's overall debt stands around 140%, the second highest in the EU after Greece. France is above 110%.
German Finance Minister Christian Lindner (FDP) insisted on adhering to the debt regulations during the Berlin budget negotiations, stating that Germany must maintain its role as a "stability anchor" in Europe - "in light of developments, like those in France, but also Italy's fiscal situation." According to Lindner, he told Deutschlandfunk.
The EU temporarily set aside its debt regulations during the pandemic to provide member states with billions in economic relief. Macron was instrumental in this reform. The revised Stability and Growth Pact came into effect at the end of April.
Post-reform, the individual countries' situations have more weight. Military spending is now specifically considered. Germany also established binding targets for debt reduction.
EU Monetary Commissioner Paolo Gentiloni, in response to the ongoing conflicts in Ukraine and the Middle East, stated that there's no "return to normalcy" following the pandemic. "There is no 'back to normal times'. We do not live in normal times," the Italian said. Yet, he cautioned against a new round of austerity measures similar to the one after the Euro debt crisis in 2008, which would be a "terrible mistake," he emphasized.
The EU Commission doesn't foresee any penalties against Germany, as the new borrowing stays within the 3% limit. However, the total debt surpasses the 60% ceiling of the EU. The Commission therefore criticized the "imbalance" in Germany. Specific EU suggestions for debt reduction are expected in the autumn.
"The citizens pay for all debts," Lindner said in an interview with DLF. This may not apply immediately, but over extended periods through interest and repayment.
Read also:
- Despite Germany's adherence to the new borrowing limit, the EU criticizes the country's "imbalance" due to surpassing the total debt ceiling.
- In response to the financial challenges faced by Italy and France, the EU Commission expects to provide EU suggestions for debt reduction in the autumn.
- Marine Le Pen, the right-wing populist leader in France, could gain significant power in the upcoming National Assembly elections due to substantial losses in the European elections.
- Slovakia, along with six other European countries, could face heavy fines for surpassing budget deficit limits in the wake of the Coronavirus pandemic.
- During the Berlin budget negotiations, German Finance Minister Christian Lindner emphasized the importance of Germany serving as a "stability anchor" in Europe, particularly considering France's and Italy's financial situations.
- Paolo Gentiloni, EU Monetary Commissioner, stated that there is no "return to normalcy" after the pandemic, cautioning against a new wave of austerity measures following the Euro debt crisis in 2008.
- In Malta, the government's deficit is projected to decrease to 3.3% this year, as reported by the EU Commission, while Hungary is under EU scrutiny for potential breaches of EU budget rules.
- The European Union has initiated potential fiscal scrutiny against Italy and France due to breaches of budget deficit limits, a move unprecedented since the Coronavirus pandemic.
- Following the revised Stability and Growth Pact, individual countries have more weight, with certain factors like military spending and debt reduction targets now explicitly considered.
- European leaders anticipate reaching a consensus in mid-July to impose penalties on member states exceeding budget deficit limits, with Italy and France at the forefront of the discussion due to their high borrowing levels.
