Rejigged EU austerity rules – in play for the first time since the pandemic – are now coming back to haunt the bloc’s biggest deficit hawks, in a move likely to prove explosive to national politics.
New Brussels fiscal rules are now being used against the bloc’s most pro-austerity members – as the European Commission today singled out fiscal hawks the Netherlands, Austria and Germany for their high spending.
Spending plans from Italy, France and Greece – previously seen as among the bloc’s more profligate – all gained the green light from Brussels, as part of an annual process of reviewing national budgets.
Under the rules, the Commission must assess not just each country’s budget for next year – but a credible longer-term path for the deficit. It also checks whether countries are meeting EU Treaty requirements to keep deficits under 3% of GDP.
The news comes as France’s government teeters on the back of a difficult tax-raising budget – and Germany heads to the polls for national elections where its ailing economy is likely to take centre stage.
Covid and the ensuing energy crisis led the EU to largely abandon fiscal rules. When they had to be re-written for the post-pandemic era, the EU’s northern members were the toughest negotiators.
Germany’s finance minister Christian Lindner called for “automatic rules” with “numerical benchmarks” to ensure compliance with norms that are often in practice ignored.
Now Germany is both among the member states assessed not to be fully in line with expenditure ceilings – nor did the country even submit a medium-term plan in line with Brussels’ deadlines.
That could prove explosive domestically. National elections are set to take place in February, after Lindner quit the ruling three-party coalition of beleaguered German Chancellor Olaf Scholz.
“Germany has no results because we have a split government,” Stefan Berger, a Member of the European Parliament (MEP) from the centre-right opposition CDU party, told Euronews.
“Now we see that we have problems in innovation, that we have problems with investments, and that’s the reason why Germany goes into economic crisis,” Berger added.
Austria, Belgium, Bulgaria, and Lithuania are also among those that haven’t yet sent in their fiscal homework, due to elections or ongoing coalition talks.
“In the case of Austria, its deficit is currently projected to remain above 3% in the coming years,” the Commission’s Valdis Dombrovskis told reporters on Tuesday.
“The Commission will consider proposing the opening of an EDP [excessive deficit procedure],” he added, suggesting that Austria will be put under extra scrutiny from Brussels, alongside the likes of Belgium, France and Italy which were already flagged for high debt before the summer.
Netherlands fail
The Netherlands, which in July came under the rule of a coalition led by Geert Wilders’ far-right Freedom Party, is the only one of the 21 countries assessed with a fail grade for its medium-term plans covering the next few years.
On 15 November, the Commission predicted the Netherlands’ deficit will rise from 0.2% this year to 2.4% in 2026, due in part to income tax cuts and a rise in public investment.
In talks with EU officials, Dutch authorities “indicated that they are waiving their right to submit a revised plan”, instead accepting alternative Commission figures that assumed lower growth, Dombrovskis said.
Others were granted extra time – seven years rather than four – to bring deficits under control.
That includes France, where talks on the annual budget are threatening to bring down the minority government led by Michel Barnier.
Far-right National Rally leader Marine Le Pen has said she’ll vote no confidence in Barnier if she doesn’t get her way on electricity tax and pensions levels.
French socialist MEP Claire Fita told Euronews that a focus on balancing the books was misguided.
“The need is to protect skills, jobs and the developments that we need to create on the European continent,” Fita said, adding: “If it [France] is seeking austerity, as it seems to be proposing, it’s a mistake.”
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