Brussels/Vienna – Since November, it has been in the air, and last Wednesday the European Commission actually took the first step towards initiating an EU deficit procedure against Austria. After determining an excessive deficit, it announced that it would recommend a deficit procedure. After this is likely to be formally done at the end of June, it still needs to be approved by the Council of Economic and Finance Ministers. This could happen at its meeting on July 8 in Brussels.
The EU Commission presented its spring package on the so-called European Semester in Brussels. This includes not only economic policy and reform recommendations to EU countries but also reports on budget monitoring, which scrutinize compliance with the deficit and debt criteria for at-risk countries. The Commission finds that Austria has an excessive deficit. In addition to Austria, Finland, Latvia, and Spain were also examined more closely due to their budget deficits.
Dombrovskis: Clear case for procedure
The reason for the procedure is that Austria, with its budget deficit of 4.7 percent of GDP last year and the planned 4.5 percent this year, is clearly above the allowed limit of three percent of economic output according to the so-called Maastricht criteria of the EU. “For Austria, the report concludes that the deficit criteria have not been met,” explained the responsible EU Commissioner Valdis Dombrovskis at the press conference. He referred to it as a “clear case for the opening of a deficit procedure.”
According to the report, public deficits in Austria and Finland in 2024 were “above and not near the reference value.” For Spain, it was “near.” In Latvia, the excessive deficit in 2025 is entirely attributed to an increase in defense spending. “According to the Commission’s spring forecast for 2025, public deficits in Austria and Finland are expected to remain above three percent of GDP in 2025 and 2026. It is therefore expected that their deficits, which exceed the reference value, are not temporary,” the report continues. In Finland, this is attributed to high defense spending.
Clause for defense spending not requested
Austria has not yet requested the activation of the national escape clause, and defense spending has been stable and relatively low since 2021, the Commission emphasizes. 16 EU countries have requested the escape clause so that a certain share of higher defense spending can be excluded from the calculation of the budget deficit. The Commission today adopted recommendations to the Council for activating the national escape clause for the affected countries.
In addition to the 3 percent limit, other factors must also be considered, such as the medium-term economic and budgetary situation of the member state. According to the Commission, “the debt sustainability analysis indicates medium-term high risks” for Austria. In 2024, the debt level in relation to GDP rose to 81.8 percent and is projected to further increase to 84.0 percent by the end of 2025 and 85.8 percent by the end of 2026.
“The next step is for the Economic and Financial Committee to formulate an opinion, and based on that, the Commission will propose to the Council to initiate a deficit procedure for Austria,” said Dombrovskis. The EU Commission is currently assessing the medium-term fiscal-structural plan submitted by Vienna in May. In discussions with the Austrian authorities, the impending deficit procedure was addressed, and the necessity for it to be considered in the plan was emphasized. If this happens, the Commission will evaluate the plan positively.
Austria must implement the plan
After that, according to the EU Commissioner, it is up to Austria to implement this plan. By October 15, Austria must submit the next general budget plan, according to the Commission. This should also include further measures for deficit reduction. The federal government aims to exit the EU deficit procedure by 2028. Finance Minister Markus Marterbauer (SPÖ) stated last week in the Federal Council that he has “no fear at all” of the deficit procedure.
SPÖ EU Member of Parliament Evelyn Regner, a member of the Economic Committee, reaffirmed the finance minister’s statements: “A deficit procedure is by no means the end of the world and primarily means coordination, not control. It also brings opportunities for Austria, especially if sustainable investments are made, as provided in the new budget plan. Last spring, we advocated for more flexible rules for debt reduction at the EU level, meaning more room for investments to strengthen our economic location.”
Brunner: Framework conditions are challenging
Former Finance Minister and current EU Commissioner Magnus Brunner (ÖVP) commented on the deficit procedure: “The framework conditions are challenging.” The current economic situation is very challenging across Europe, with an average growth of 1.1 percent. There are uncertainties in global trade and the economy. “The Austrian federal government has now decided to take this path, and that must be accepted.” Furthermore, Brunner did not want to comment on the upcoming procedure.
Foreign Minister Beate Meinl-Reisinger (NEOS) said on the sidelines of a press conference that the government has presented a “very ambitious budget plan.” She would have preferred to avoid a deficit procedure. But “we are currently addressing that.” She is also very much looking forward to the upcoming conference of state governors, as budget consolidation requires “an enormous joint effort,” she explained on Wednesday afternoon in Vienna.
Former EU Budget Commissioner Johannes Hahn (ÖVP), who was also present, expressed confidence. “It’s also about reforms; it’s not just about budget consolidation. It’s also about sustainable investments that make Europe as a whole, and therefore Austria, more competitive and resilient in an increasingly globalized and disruptive world.” He is “confident” that “we will get this sorted out.”
Criticism came from the FPÖ. The government is steering the country “straight and knowingly under the guardianship of the Brussels EU centralists” and thereby breaking a central promise from its government program, thundered the Freedom Party’s Secretary General Michael Schnedlitz, warning of “social cuts and massive protests” like those in France, Spain, Portugal, or Greece. (04.06.2025)
