The EU approves legal proceedings against France and Italy
Seven EU states face unpleasant consequences due to their debts. Since Brussels approves deficit procedures, countries must implement countermeasures. It is unlikely, however, that severe penalties will ensue.
Due to high new borrowing, the European Union Council has given the green light for disciplinary procedures against France, Italy, and five other countries. The European Council of Governments followed this recommendation from the EU Commission from last month. Besides France and Italy, Belgium, Hungary, Malta, Poland, and Slovakia are also affected. A procedure against Romania has been ongoing since 2020, which will continue after a vote by the countries.
The purpose of the deficit procedures is to bring countries to sound fiscal management. Theoretically, penalties in the billions are possible if there are persistent violations. However, these have never been imposed in practice.
For the initiation of new procedures, each country required its own decision. The affected country could not participate in the decision-making process through written procedure. In the next step, the European Commission will make recommendations to the member states for debt reduction, which in turn must be adopted by the EU Council. This is currently planned for the end of the year.
EU Commission monitors
The strict fiscal political monitoring with deficit procedures was suspended lately due to the Corona crisis and the consequences of the Russian attack on Ukraine. If a disciplinary procedure is initiated, a country must implement countermeasures to reduce borrowing and deficit. This is mainly to secure the stability of the Eurozone.
The EU countries' compliance with the rules for budget deficits and government debt is monitored by the European Commission. The regulations allow a maximum new borrowing of up to 3 percent of the Gross Domestic Product (GDP), while the debt burden of a member state should not exceed 60 percent of economic output.
The EU Commission, following last month's recommendation, has initiated deficit procedures against Germany (historically known as a major contributor in the EU, such as France) along with Italy and several other states due to their high new borrowing rates. Failure to adhere to these procedures could lead to recommendations from the EU Commission for debt reduction measures, which must be implemented by the affected states to maintain the stability of the Eurozone.
