The European Commission faced criticism from a panel of fiscal advisors for giving Spain leniency over its high budget deficit earlier this year. The advisors stated that Spain should have been deemed to have an excessive deficit, similar to other countries like France, Italy, and Romania. Despite the EU’s return to fiscal discipline after the pandemic, the European Fiscal Board noted that the Commission failed to follow EU law when forgiving Spain for its deficit. The decision not to take legal action against Spain was seen as not strictly in accordance with the rules and added a new element of discretion that was not included in the relevant legal provisions.
EU rules require countries to keep deficits under 3% and debt under 60% of GDP, but these requirements were put on hold during the pandemic and energy crisis of 2020. The return of these rules sparked a dispute among Member States, with some countries facing challenges in balancing their budgets. In June, the Commission criticized several countries, including Belgium, France, Italy, Hungary, and others, for their failure to balance their books. These countries are now negotiating with Brussels on how they will achieve fiscal balance, with some doubts surrounding the credibility of their promises. France, with one of the highest deficits in the eurozone, is facing particular instability after recent elections.
The decision not to take legal action against Spain for its deficit was based on the belief that it was temporary. The Commission stated that it would continue to monitor Spain’s budgetary developments and re-assess the situation based on the data observed in the autumn and the autumn forecast. Spain is expected to cut its deficit, but the European Fiscal Board raised concerns about inconsistencies in how countries were treated by Brussels, suggesting that Spain should have faced a formal warning despite the expected deficit reduction. The Board emphasized that the excessive deficit procedure is based on observed facts, and Spain’s deficit was clear and well-documented.
The European Commission’s decision not to take legal action against Spain for its high deficit has raised questions about the enforcement of EU fiscal rules and the discretion exercised by Brussels. While EU laws require countries to keep deficits under a certain threshold, the pandemic and subsequent energy crisis prompted a temporary suspension of these rules. However, the return to fiscal discipline has proven challenging for some Member States, with countries like France facing particular instability and uncertainty. The negotiations between these countries and Brussels on how to achieve fiscal balance underscore the complexities of enforcing fiscal rules in the EU.
The issue of fiscal discipline and enforcement of EU rules is critical as Member States strive to recover from the economic impact of the pandemic. The European Fiscal Board’s criticism of the Commission’s decision regarding Spain’s deficit highlights the need for consistent application of EU laws and procedures. The ongoing monitoring of budgetary developments in Spain and other countries will be crucial in ensuring compliance with EU fiscal rules. As the EU navigates the challenges of post-pandemic recovery, maintaining fiscal discipline and enforcing budgetary rules will be essential in promoting economic stability and growth across the European Union.
