European Commission Expected to Recommend Deficit Procedure for Austria

On Wednesday, it is anticipated that the European Commission will officially recommend the initiation of a deficit procedure for Austria. This follows months of speculation since November regarding the country's financial status. Should the Commission proceed with this recommendation, it will require subsequent approval from the Economic and Financial Ministers' Council, which is scheduled to meet on June 20 in Luxembourg and July 8 in Brussels.

The expected recommendation stems from Austria's budget deficit, which was recorded at 4.7 percent of Gross Domestic Product (GDP) last year, with a projected deficit of 4.5 percent for the current year. Both figures significantly exceed the EU's Maastricht criteria, which stipulates that member states must maintain a budget deficit below three percent of GDP.

As part of its Spring Package for the European Semester, the Commission will present economic policy and reform recommendations for EU member states, along with reports on budgetary oversight that evaluate compliance with deficit and debt criteria for at-risk countries.

The deficit and debt criteria are rooted in the Stability and Growth Pact, which aims to ensure the maintenance of sound public finances among EU countries. Member states are required to adhere to a deficit limit of three percent and a debt limit of 60 percent of GDP. If these criteria are not met, the Commission assesses whether the deficit exceeds public investment spending and evaluates the overall medium-term economic and budgetary situation. Based on this assessment, the Commission decides whether to recommend the opening of a procedure to the EU's Economic and Financial Ministers.

Earlier in November, during discussions of the Autumn Package, the Commission had also considered initiating a procedure against Austria, indicating that the country's budget deficit did not align with EU expectations. However, measures proposed by the ruling coalition in January managed to temporarily avert this procedure. The former Finance Minister expressed concerns about the potential ramifications of a deficit procedure.

As budget forecasts continued to deteriorate over subsequent months, it became increasingly clear that avoiding the procedure would be unlikely. The European Commission's economic forecast published in mid-May identified Austria as the only EU country expected to experience an economic contraction this year. Notably, Austria is not alone in facing a deficit procedure; similar procedures are currently active against Belgium, France, Hungary, Italy, Malta, Poland, Slovakia, and Romania.

Officials from the government and the Commission have sought to downplay the potential consequences of a deficit procedure. The Finance Minister and the President of Austria have both expressed confidence, suggesting that there is no reason for alarm. The Austrian government aims to exit the EU deficit procedure by 2028. A representative of the EU Commission in Austria stated that the specific measures implemented during the procedure would be determined by the Austrian government, ensuring that the nation would not be placed under direct oversight.

If a deficit procedure is initiated, Austria and the Commission will collaboratively develop a plan to reduce the deficit. Clear guidelines will dictate the target levels for the deficit in the current and subsequent years, though the country will propose its own specific measures. Typically, a procedure lasts around four years, and although failure to meet the proposed savings can result in fines, such penalties have never been imposed to date. This would mark Austria's second experience with an EU deficit procedure, the first having been established following the financial and economic crisis of 2008.