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The biannual spending review conducted by the European Commission has revealed that Finland exceeds its budgetary limits. This report serves as a reminder for EU member states to tighten their financial practices and adhere to established fiscal regulations.
In the context of the European Semester, a framework for monitoring national budgets and economic policies, the Commission identified various countries struggling to remain within mandated fiscal constraints. The implications of these findings are significant. Exceeding budget limits can trigger excessive deficit procedures (EDPs), raising concerns among investors about the financial stability of member states.
Current financial landscape in the EU
Following the relaxation of spending rules during the pandemic, the need for fiscal discipline has resurfaced as the EU economy recovers. Many governments are facing compliance issues, particularly in light of external challenges such as trade tensions with the United States and escalating military expenditures due to geopolitical tensions with Russia.
Finland, situated on the EU’s eastern frontier, has received specific reprimands for exceeding the EU’s budget deficit limit, which caps spending beyond tax revenues at a maximum of 3 percent of GDP. Although recent adjustments allow for an additional 1.5 percent of GDP to be allocated for defense spending, Finland’s financial situation remains precarious.
Finland’s financial challenges
According to Valdis Dombrovskis, the Economy Commissioner, the excess deficit cannot be attributed solely to increased defense costs. As Finland prepares to tackle its budgetary issues, it faces heightened pressures on its social and health services alongside a rising defense budget.
While Finland’s situation has drawn significant attention, other countries such as Croatia, Lithuania, Slovenia, Spain, Bulgaria, Hungary, the Netherlands, and Malta also struggle to comply with their financial plans. If these nations do not take corrective actions, they risk facing repercussions in the upcoming review.
Mixed reactions across member states
Interestingly, Romania is showing a positive trajectory following recent economic reforms, prompting the Commission to avoid imposing significant penalties. Despite a projected budget deficit of 8.4 percent of GDP, Romania has managed to evade immediate sanctions due to its reform efforts.
Conversely, Germany is in a precarious financial position as it plans to maintain high levels of spending to stimulate growth. However, this strategy poses risks amid external challenges from China that threaten its export-driven economy. Chancellor Friedrich Merz faces the difficult task of implementing reforms to rejuvenate Germany’s economic growth.
France’s budget uncertainties
Meanwhile, France grapples with financial uncertainties as the government struggles to finalize the budget for 2026. Prime Minister Sébastien Lecornu aims to reduce the budget deficit to 5 percent of GDP, but legislative obstacles may hinder these efforts. Despite these challenges, the Commission has expressed cautious optimism regarding France’s adherence to fiscal recommendations.
Hungary’s fiscal outlook is troubling. The Commission urges the government to implement necessary cuts to exit the EDP. However, with upcoming elections, Prime Minister Viktor Orbán may be reluctant to make unpopular financial decisions that could jeopardize his political standing.
Improvement in Italy’s fiscal discipline
In the context of the European Semester, a framework for monitoring national budgets and economic policies, the Commission identified various countries struggling to remain within mandated fiscal constraints. The implications of these findings are significant. Exceeding budget limits can trigger excessive deficit procedures (EDPs), raising concerns among investors about the financial stability of member states.0
In the context of the European Semester, a framework for monitoring national budgets and economic policies, the Commission identified various countries struggling to remain within mandated fiscal constraints. The implications of these findings are significant. Exceeding budget limits can trigger excessive deficit procedures (EDPs), raising concerns among investors about the financial stability of member states.1
In the context of the European Semester, a framework for monitoring national budgets and economic policies, the Commission identified various countries struggling to remain within mandated fiscal constraints. The implications of these findings are significant. Exceeding budget limits can trigger excessive deficit procedures (EDPs), raising concerns among investors about the financial stability of member states.2