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4 I Companies & Markets bne July 2024
The Commission suspended the EDP during the COVID-19 pandemic, but this suspension was lifted at the end of last year. / CC/Wikipedia
Poland, Hungary and Slovakia set to enter EU's Excessive Deficit Procedure
Robert Anderson in Prague
Poland, Hungary and Slovakia are set to be put under the European Union’s Excessive Deficit Procedure (EDP), following a European Commission analysis of their budget deficits published on June 19.
The Commission move could open a new front in the battle between Central Europe's populist governments and the EU. Hungary's and Slovakia's populist governments have thumbed their noses at the Commission's advice over their budgets – notably by prolonging energy subsidies long after the price shock following the Russian invasion of Ukraine – while Poland's new centrist government is wrestling with the legacy left by its populist predecessor.
“At a time when Europe and national governments are facing increasing support for populist parties, with often highly expensive economic policy proposals, the EDP announcements could add to political tensions,” ING said in a note. “Eventually, it could also lead to tensions within the monetary union if
one or more member states do not comply with the proposed correction path.”
From Central and Eastern Europe (CEE), Czechia and Estonia also breached the Stability and Growth Pact’s threshold of
a budget deficit of 3% of gross domestic product (GDP) 3%
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in 2023, and Slovenia may do so this year, but they escaped sanction because their excessive deficits are viewed as either temporary or caused by extraordinary one-off factors.
Slovenia was excused partly because floods earlier this year cost 1.7% of GDP, according to government estimates, and its deficit will return under 3% of GDP next year.
Czechia’s deficit is viewed as only temporary as it is forecast to fall below 3% this year after an austerity package passed last year worth an estimated 1.5% of GDP.
Estonia was forgiven, even though its deficit will still be above the threshold next year, because it is still struggling to emerge from a three-year recession.
Romania, whose deficit is expected to be above the 3%
limit in 2023 and in 2024, is already under the EDP. The Commission said that Romania had taken no effective action in response to the Council recommendation on its deficit of 18 June 2021.
Three CEE states – Hungary, Croatia and Slovenia – also breached the secondary threshold of having public debt of more than 60% of GDP.