On Wednesday, June 19, the European Commission issued its policy directives to member states, i.e. its Spring Package for the European Semester of 2024, in which it recommends the initiation of an excessive deficit measure against 12 countries, including Hungary.
That is, the European Commission does not like the fact that the Hungarian budget is overspent, and that the national debt is also high.
As for the decision In his statement The Commission examined 12 countries to see if they were complying with EU budget deficit rules, however, during the investigation, it considered that an excessive deficit procedure should be initiated in the case of seven countries, the European Commission wrote. With the exception of Hungary, the European Commission was not satisfied with the budgets of Belgium, France, Poland, Malta, Italy and Slovakia.
What is this procedure and what comes next?
The purpose of the excessive deficit procedure is to invite a Member State to correct its budget if the State's debt to a Member State is too high or the budget has an excessive deficit. In the European Union, member states' fiscal policy is scrutinized because if one member state approaches bankruptcy, it can affect other member states as well – a good example of this is the Greek crisis that began in 2009. This is stipulated in the European Charter The Stability and Growth Pact, which consists of two branches: a preventive branch, and a restorative and corrective branch.
The procedure can be started if
- A country's annual deficit exceeds 3% of GDP, or there is a risk of this happening;
- Or the ratio of public debt to GDP exceeds 60% for three consecutive years, without falling below that.
Due to the coronavirus pandemic and the subsequent inflationary crisis, the European Commission has suspended its deficit regulations for the past four years, the so-called Maastricht criteria, and last December the Economic and Financial Council of the Council of the European Union (ECOFIN), made up of finance ministers of member states, decided to reinstate them. In 2024, but at the same time there will be a reduction in items when calculating the criteria – such as the green and digital transformation, the development of the military forces or some social expenditures.
If a Member State continues to violate these regulations and is subject to action, it can be fined 0.05% of its annual GDP until it meets the conditions again.
At the same time, this procedure is initiated not by the European Commission, but by the Council of the European Union, taking into account the Commission's proposal.
If the procedure is initiated, it does not result in a penalty the first time.
ECOFIN is next scheduled to meet on Friday, and only after July, when the Hungarian presidency begins. The European Commission's spring package will be discussed for the first time on Friday, and then, at the next meeting, on July 17, the Council is supposed to decide whether or not to initiate action against the countries concerned.
After that, member states must first present their four-year plan, and how they can reduce the deficit and public debt, based on the plan and deadlines. The submitted plans will only be evaluated in the fall by the new European Commission, and recommendations will be presented to the Council.
The European Commission presented its forecasts last May, calculating that the Hungarian budget deficit this year could reach 5.4%, while growth could reach 2.4%, and public debt could also grow to 74.3% of GDP, according to the Commission’s forecasts. European. Forecast – we wrote more about this in this article.
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