How Countries Keep Testing the EU’s Fiscal Rules

The European Union requires all 28 member states to maintain sound public finances, no matter their size or national challenges. But infractions generally don’t result in real punishment, and smaller countries sometimes complain that the biggest economies have gotten the most leniency. That’s set up a perpetual tension between the EU and national governments who test the limits. The latest to run afoul of Brussels bureaucrats was Italy, which got a formal warning in May that it could face penalties for exceeding debt limits or busting its budget. The European Commission ultimately decided to withhold disciplinary measures. While Brussels often pulls its punches on enforcing the rules, the stigma of being a fiscal pariah can be enough to rattle financial markets and push reprobate countries into compliance.

They state that no country should have a budget deficit larger than 3% of gross domestic product or debt above 60% of GDP. Failing that, governments must set annual targets to show they’re moving in the right direction. The European Commission, the EU’s executive arm, monitors the finances of the bloc’s members, reviews annual spending plans, identifies imbalances and issues country recommendations every spring. These have to be endorsed by finance ministers and incorporated into budget plans for the subsequent year.