Defending against EU dictates

Finance Minister Mayr on a delicate mission in Brussels

Finance Minister Gunter Mayr with EU Commissioner Valdis Dombrovskis

(Bild: European Commission)

Austria's deputy ministers are currently holding the door handle in Brussels. After Interim Chancellor and Foreign Minister Alexander Schallenberg, Finance Minister Gunter Mayr traveled to the EU metropolis today to present the blue-black austerity plans and avert deficit proceedings against Austria by the Commission.

There is a simple reason why Brussels has a say in the national budget at all: undesirable developments in economic policy can have repercussions for all member states, especially those with the single currency. In order to recognize undesirable developments in good time and take countermeasures, the EU countries monitor each other. They have all undertaken to comply with certain criteria in order to ensure stability and growth.

Maastricht criteria

EU member states must adhere to certain criteria when participating in the Economic and Monetary Union (EMU), the so-called convergence criteria:

• The public deficit must not exceed 3 percent of GDP.
• Public debt may not exceed 60 percent of GDP.
• The inflation rate may not be more than 1.5 percent higher than that of the three member states with the most stable prices in the previous year.

The European Commission and the European Central Bank check compliance with these criteria and the Commission can initiate infringement proceedings in the event of non-compliance.

If proceedings are initiated, the European Commission will give the deficit sinners a path for reducing their debt over the next few years. This reference path covers a period of four years, which can be extended to up to seven years at the request of a country with appropriate reform and investment projects.

6.4 billion this year is very ambitious
The FPÖ and ÖVP want to avoid such a "diktat" from Brussels and have agreed on a seven-year restructuring plan. According to this plan, around 6.4 billion euros are to be saved this year. Many budget experts are skeptical as to whether this will work out, as the year is already running. So things have to move very quickly.

The ÖVP and FPÖ were the first to draw up a restructuring plan.

(Bild: EPA)

Austria has a spending problem
The pro-business think tank Agenda Austria, on the other hand, believes this is feasible, and only on the expenditure side. It has drawn up a list of potential savings of up to eleven billion. According to this list, the over-subsidization of the climate bonus alone costs 800 million euros. Abolishing the entire climate bonus would save 2.3 billion. The abolition of educational leave would generate 730 million, while stopping subsidies for the green transformation would generate a further 500 million. There is also a lot to be gained in the social sector: compensating for the over-adjustment of pensions since 2009 would suddenly generate 720 million. The diesel privilege costs 500 million a year, the VAT relief for renewable energy 200 million and the increase in the commuter allowance since 2013 another 200 million.

(Bild: Krone KREATIV)

Wifo head Gabriel Felbermayr and IHS director Holger Bonin have spoken out in favor of an EU deficit procedure against Austria instead of a radical austerity course so that the economy is not stifled. According to the latest Wifo forecast, an abrupt reduction in the deficit to the Maastricht ceiling of 3 percent would dampen growth by 0.5 to 1 percentage point.

(Bild: Krone KREATIV/Stock Adobe)

Deficit procedure would offer more flexibility
As a rule, an excessive deficit procedure offers more flexibility in the short term when exceptional economic or financial crises occur (e.g. recession, natural disasters or unexpected geopolitical tensions). In such cases, the EU allows a country to temporarily exceed the deficit in order to stabilize the economy and take necessary economic measures. A strict limit would create additional burdens in such times, as the country may be forced to make cuts or raise taxes during a crisis, which could slow down the recovery.

EU can also impose sanctions on deficit sinners
As part of an excessive deficit procedure, sanctions can be imposed on a deficit offender if it fails to meet the requirements imposed on it to correct an excessive deficit. Non-compliance could ultimately result in fines in the billions - although this has never happened before.

Is Austria the only EU deficit offender?
No, quite the opposite. The EU Commission initiated EU deficit proceedings against seven countries in June 2024. These included France and Italy - the second and third largest economies in the European Union. In addition to France and Italy, Belgium, Hungary, Malta, Poland and Slovakia are also involved. Proceedings are also pending against Romania.

Final deadline on January 30
The timetable: In a next step, the Commission will make a recommendation to the Council of Ministers. It is then up to the Council to decide whether or not to open an excessive deficit procedure. The entire EU Commission meets every Wednesday in Brussels. A decision on the recommendation could therefore be made tomorrow. According to the Commission spokesperson, the final deadline for Austria is January 30th. Of course, these issues would normally be decided at the Council of Economics and Finance Ministers, which next meets in Brussels on January 21.