EU debt rules: EU Commission wants to start deficit proceedings against Austria

The European Commission wants to initiate criminal proceedings against Austria for excessive debt. The country has an excessive deficit, announced the Brussels authority responsible for compliance with EU debt rules. The aim of the deficit procedure is to bring states to solid household management.

Last year, the state deficit of the Alpine Republic was 4.7 percent of economic output-it is therefore well above the EU upper limit of 3 percent. At the same time, Austria is in an economic crisis with strong inflation, weak consumption demand and persistent recession. According to a forecast by the EU Commission, Austria is the only EU member whose economy will shrink this year. The current government plans to reduce government spending by 2029 by a total of 54 billion euros.

Austria’s Foreign Minister and Chair of Liberal NEOS, Beate Meinl-Reisinger, said, according to APA news agency, that she would have liked to avoid deficit proceedings. But: “We’re bending that.” Budget consolidation needs enormous joint effort from the federal and state governments.

EU Commission for supervision

The EU Commission supervises whether the EU countries comply with the requirements for budget deficits and government debt. The European debt rules apply to every Member State. The set of rules allows a new debt of a maximum of three percent of the gross domestic product (GDP).

The next step in the procedure against Austria is now statements by the Economic and Finance Committee. After that, the Commission wants to make statements in order to confirm the existence of an excessive deficit. Then the Commission will propose the EU financial ministers to pronounce recommendations for deficit reduction.

The step is not surprising for Austria. The government of conservative ÖVP, social democratic SPÖ and liberal Neos had several times the possibility of a deficit procedure. The previous government from the ÖVP and Greens had cushioned the economic effects of Corona pandemic and the Ukraine War with costly support measures. Various environmental funding has also been implemented.

Deficit procedures are supposed to cause solid housekeeping

If criminal proceedings are initiated, a country must initiate countermeasures to reduce debt and deficit. This is intended to ensure the stability of the euro zone in particular. Theoretically, punishments in billions in billions are also possible. In practice, however, these have never been imposed.

The deficit procedures were temporarily exposed to the Corona crisis and the consequences of the Russian attack on Ukraine. Last year, the Commission also started criminal proceedings against France, Italy, Belgium, Hungary, Malta, Poland and Slovakia. However, the Commission now said that no further steps would have to be taken in the procedures against most of these countries. A procedure also runs against Romania.

Regulations recently reformed

The rules for government debt and deficits, which are also called stability and growth pact, were reformed in 2024 after years of debate. In addition to the upper limit for new debt, it still applies that the debt of a Member State must not exceed 60 percent of the economic output.

Germany reached a deficit rate of 2.8 percent of gross domestic product last year and thus remains in the prescribed framework.

In order to ensure solid finances, each country together with the EU Commission responsible for supervision must draw up a four-year budget plan. Under certain conditions, such as if a country is committed to growth -promoting reforms and investments, the plan can be extended to seven years. Countries can also use an exception rule for investments in armaments.