Following a written vote from Wednesday to Friday, ambassadors from EU member states approved the commencement of the excessive deficit procedure against seven member states, including Poland. This mechanism, designed to monitor and control budgets in EU countries, will now require Poland, France, Italy, Belgium, Hungary, Malta, and Slovakia to implement corrective actions within four to seven years to rectify their public finances.
The European Commission will propose to the Council of the European Union a set of recommendations aimed at eliminating the excessive deficit within a designated timeframe. These recommendations will outline a budgetary trajectory focusing on primary expenditures while considering income-side measures.
The next step involves sending Poland specific recommendations regarding its public expenditure path for the coming years. This is intended to ensure a reduction in the deficit and maintain control over public debt. Throughout the summer, discussions between the EU commission and the Polish government will focus on the final form of measures Poland should take to reduce its deficit.
In these negotiations, “relevant factors” influencing the deficit’s size will play a significant role. For Poland, defense spending, currently around 4 percent of its GDP, may potentially soften Brussels’ stance, given the strategic importance of these expenditures.
Implementing the excessive deficit procedure could necessitate budgetary savings by the government, a challenging task amid increased defense outlays. In a discussion with money.pl, Finance Minister Andrzej Domański expressed hope for lenient recommendations from the European Commission. However, economists point out that increased military spending and protections against rising energy prices might not suffice to explain the deficit exceeding the maximum percentage of GDP allowed by 2.1 points. Furthermore, issues with VAT revenues could complicate the efficient filling of the budgetary gap.
While the excessive deficit procedure presents challenges for the finance minister, it can also serve as leverage in discussions with other ministers about costly initiatives and their potential blocking. At the same time, excessively rejecting coalition partners’ proposals could threaten the stability of the ruling left-liberal coalition.
Historically, the European Commission has typically presented corrective recommendations immediately, with decisions to initiate the excessive deficit procedure against individual states. However, this year, the recommendations will be delayed until November, to be aligned with the work on medium-term national plans — a new requirement in the recently reformed fiscal rules, which mandate countries to prepare plans for maintaining fiscal discipline. Poland has previously been under the excessive deficit procedure twice: from 2004 to 2008 and from 2009 to 2015.
