EU Deficit Procedure Against Austria Confirmed

After identifying an excessive deficit, it announced plans to recommend a deficit procedure. Once this is formally done, likely by the end of June, it must then be approved by the Council of Economic and Finance Ministers. This could happen at their meeting on July 8 in Brussels.

"Clear Case for Opening a Deficit Procedure"

On Wednesday in Brussels, the EU Commission presented its spring package for the so-called European Semester. In addition to economic policy and reform recommendations for EU countries, it includes reports on budget monitoring that scrutinize compliance with the deficit and debt criteria for vulnerable countries. For Austria, the Commission identified an excessive deficit. If a deficit procedure is initiated, Brussels and Vienna will jointly create a plan to reduce the debt. The federal government aims to exit the EU deficit procedure by 2028.

The reason for the procedure is that Austria, with its budget deficit of 4.7 percent of GDP last year and the planned 4.5 percent this year, is clearly above the allowed limit of three percent of economic output according to the so-called Maastricht criteria of the EU. "For Austria, the report concludes that the deficit criteria were not met," explained the responsible EU Commissioner Valdis Dombrovskis at the press conference. He spoke of a "clear case for the opening of a deficit procedure."

Clause for Defense Expenditures Not Requested

According to the report, public deficits in Austria and Finland in 2024 were "above and not near the reference value." For Spain, it was "near." In Latvia, the excessive deficit in 2025 was entirely due to an increase in defense expenditures. "According to the Commission's spring forecast 2025, public deficits in Austria and Finland are also expected to exceed three percent of GDP in 2025 and 2026. It is therefore expected that their deficits, which are above the reference value, are not temporary," the report continues. In Finland, however, this is due to high defense expenditures.

Austria has not yet requested the activation of the national escape clause, and defense expenditures have been stable and relatively low since 2021, the Commission emphasizes. Sixteen EU states have requested the escape clause so that a certain portion of higher defense expenditures can be excluded from the budget deficit calculation. The Commission today adopted recommendations to the Council for the activation of the national escape clause for the affected countries.

In addition to the three percent limit, other factors must also be considered, such as the medium-term economic and budgetary situation of the member state. According to the Commission, for Austria, "the debt sustainability analysis indicates high medium-term risks." In 2024, the debt ratio in relation to GDP rose to 81.8 percent and is projected to further increase to 84.0 percent by the end of 2025 and 85.8 percent by the end of 2026.

Austria Must Implement Plan

"The next step is now for the Economic and Financial Committee to formulate an opinion, and based on that, the Commission will propose to the Council to initiate a deficit procedure for Austria," said Dombrovskis. Currently, the EU Commission is evaluating the medium-term fiscal-structural plan submitted by Vienna in May. In discussions with the Austrian authorities, the impending deficit procedure was addressed, and the necessity for it to be considered in the plan was emphasized. If this happens, the Commission will evaluate the plan positively.

According to the EU Commissioner, it is then up to Austria to implement this plan. On October 15, Austria must submit the next general budget plan, according to the Commission. This should also include further measures for deficit reduction. The federal government aims to exit the EU deficit procedure by 2028. Finance Minister Markus Marterbauer (SPÖ) stated in the Federal Council last week that he has "absolutely no fear" of the deficit procedure.

SPÖ-EU Member of Parliament Evelyn Regner, a member of the Economic Committee, reinforces the statements of Finance Minister Marterbauer: "A deficit procedure is by no means the end of the world and primarily means coordination, not control. It also brings opportunities for Austria, especially if sustainable investments are made, as foreseen in the new budget plan. Already last spring, we advocated at the EU level for more flexible rules in debt reduction, meaning more room for investments to strengthen our economic location."

Brunner: Framework Conditions Are Challenging

The former Finance Minister and current EU Commissioner Magnus Brunner (ÖVP) said about the deficit procedure: "The framework conditions are challenging." The current economic situation is very challenging across Europe, with an average growth of 1.1 percent. There are uncertainties in global trade and the economy. "The Austrian federal government has now decided to take this path, and that is to be accepted." Furthermore, Brunner did not want to comment on the upcoming procedure.

Foreign Minister Beate Meinl-Reisinger (NEOS) said on the sidelines of a press conference that the government had presented a "very ambitious budget plan." She would have preferred to avoid a deficit procedure. But "we are just about managing it." She is also very much looking forward to the upcoming conference of state governors because budget consolidation requires an "enormous joint effort," she explained on Wednesday afternoon in Vienna.

The also present former EU Budget Commissioner Johannes Hahn (ÖVP) was optimistic. "It's also about reforms, it's not just about budget consolidation. It's also about sustainable investments that make Europe as a whole, and therefore Austria, more competitive and resilient in an increasingly globalized and also more disruptive world." He is "confident" that "we will manage to get this done."

Criticism from FPÖ

Criticism, however, came from the FPÖ. The government is steering the country "straight and with open eyes under the tutelage of the Brussels EU centralists," thereby breaking a central promise from their government program, railed the Freedom Party Secretary General Michael Schnedlitz, warning of "social cutbacks and massive protests" like in France, Spain, Portugal, or Greece.

(APA/Red)

This article has been automatically translated, read the original article here.