The corrective arm: the excessive deficit procedure

KEY POINTS

The excessive deficit procedure involves several steps.

Initiating the procedure

Member States have agreed certain reference values for public deficit and debt relative to their gross domestic product (GDP), which are enshrined in Protocol (No 12) on the excessive deficit procedure: a 3 % deficit ratio and a 60 % debt ratio. The European Commission has to monitor Member States’ budgetary discipline on the basis of the following two criteria.

• The deficit ratio should remain below the 3 % of GDP reference value, unless the excess is exceptional or temporary and the ratio remains close to 3 % of GDP.
• The debt ratio should remain below the 60 % of GDP reference value or diminish sufficiently and approach this value at a satisfactory pace. The debt ratio is considered to be sufficiently diminishing if the Member State respects the fiscal path set by the Council of the European Union to put debt on a plausibly downward path, in accordance with Regulation (EU) 2024/1263 (see summary). A Member State is considered to be deviating from that fiscal path if the deviations recorded in a control account exceed certain annual or cumulative thresholds.

If at least one of these criteria appears not to have been fulfilled, the Commission is required to prepare a report in accordance with Article 126(3) of the TFEU.

The report will include a balanced assessment of all relevant factors, such as:

• the degree of public debt challenges;
• developments in the Member State’s medium-term budgetary position and its economic position;
• progress in implementing reforms and investments;
• the increase of government investment in defence;
• factors put forward by the Member State.

Stages of the procedure

• Where the Commission believes an excessive deficit procedure is required, it informs the Council, which considers any observations from the Member State concerned and adopts a decision containing an overall assessment as to whether there is an excessive deficit.
• The Council then adopts a recommendation to the Member State concerned, containing a corrective net expenditure path, expressed in numerical terms, and a deadline. This corrective path should bring an end to the excessive deficit situation by the deadline. In particular, it should bring or keep the deficit below the 3 % of GDP reference value and, where the excessive deficit procedure was opened on the basis of the debt criterion, correct the cumulated deviations.
• Where the excessive deficit procedure was opened on the basis of the deficit criterion, the corrective path must be consistent with a minimum annual structural adjustment of at least 0.5 % of GDP as a benchmark.
• Where the excessive deficit procedure was opened on the basis of the debt criterion, the corrective path must be at least as demanding as the net expenditure path, set by the Council, from which the Member State deviated.
• The Member State must take the required action within six months, although this can be shortened to three months in serious situations.
• Member States must report back to the Council and the Commission on action taken in response to the Council’s recommendation. The report must include the budgetary targets and contain information on the measures taken to achieve these targets.
• The Council and the Commission regularly monitor the action taken by Member States in relation to the excessive deficit procedure.

Sanctions

If a euro-area Member State persists in not implementing the recommendation, the Council may decide to give it formal notice to take measures to reduce the deficit within a specified period. The Council can impose a fine of up to 0.05 % of the latest estimate of the previous year’s GDP, to be paid every six months until the Council considers the Member State has taken effective action in response to the notice issued.