European Union flags fly outside the headquarters of the European Commission in Brussels. Photo: Aris Oikonomou / AFP / Lehtikuva
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Finland will be placed in the European Union’s excessive deficit procedure (EDP) after the European Commission confirmed the country is breaching the bloc’s core economic rules on debt and budget deficits.
The Commission announced the proposal this week following new data showing Finland’s budget deficit has exceeded 3 percent of GDP and its debt level is forecast to rise above 90 percent next year. The EDP aims to ensure that member states comply with EU fiscal criteria, which limit national debt to 60 percent of GDP and annual deficits to 3 percent.
Finland’s deficit reached 4.3 percent in 2024 and is expected to remain above the threshold this year. The country’s debt-to-GDP ratio stood at 88.1 percent and is forecast to climb to 92.3 percent by 2027.
The formal procedure is expected to be launched in early 2026, with EU finance ministers set to make the final decision in January. Once in effect, Finland must report its fiscal adjustment plans to the Commission by April.
Petteri Orpo, Finland’s prime minister, said the development was expected and attributed the country’s deteriorating fiscal position mainly to the economic fallout from Russia’s war in Ukraine. Writing on X, he said the government’s consolidation programme had helped prevent a deeper debt spiral, but stabilising the economy would take years.
“Even €10 billion in adjustments does not repair the damage caused,” Orpo wrote. “Our actions have been right. This work must continue.”
The Commission applies flexibility for military spending when evaluating deficit levels. Germany, which also exceeded the 3 percent limit, avoided the EDP because 0.5 percentage points of its deficit were linked to defence investments. In Finland’s case, only one percentage point of the 4.3 percent deficit was attributed to defence, which was not enough to offset the breach.
The EDP does not impose immediate sanctions but obliges the country to reduce its deficit below 3 percent within a specified timeline. The Commission will outline this timeline in December. Penalties, such as fines or the withholding of EU funds, remain theoretical and have not been enforced in previous cases.
Finland last faced the procedure following the 2008 financial crisis. The case was dropped in 2011 when revised figures showed the country had remained within the limits.
The upcoming procedure places Finland alongside nine other EU member states already under similar scrutiny: Austria, Belgium, France, Italy, Hungary, Malta, Poland, Slovakia, and Romania.
The Commission has focused primarily on annual deficits when launching EDPs, while allowing some leeway on total debt due to post-pandemic fiscal pressures. Some countries, such as Italy and Hungary, are currently allowed targets well above the 3 percent rule.
The Commission’s upcoming recommendation will set individual targets for Finland based on its specific situation. While no mandatory spending cuts or tax increases are dictated, the country must achieve the deficit reduction within the agreed timeframe. One possible scenario is that the deficit be brought under control by 2028, which would affect the next government’s budget planning in 2027.
Earlier this year, Finland narrowly avoided the EDP due to defence-related exceptions.
HT
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Source: www.helsinkitimes.fi
