Last week, Finance Minister Riikka Purra (Finns) warned parliament members that Finland would likely be subject to the Excessive Debt Procedure.
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File aerial photo of Helsinki’s Senate Square and the Government Palace. Image: Retu Liikanen / Yle
The European Commission proposed on Tuesday to begin taking disciplinary steps against Finland over its excessive state deficit.
The disciplinary process, known as the Excessive Debt Procedure (EDP), is designed to ensure member states comply with the EU’s deficit and debt rules.
Under those rules, governments are not allowed to run budget deficits larger than three percent of the country’s GDP. If the limit is breached, a deadline to reduce the debt is set, and repeated failures to comply with the rules can result in fines.
Last week, Finance Minister Riikka Purra (Finns) warned parliament members that Finland would likely be subject to the procedure.
Purra issued the warning shortly after the Commission published an economic forecast suggesting that Finland’s state debt would exceed a cap of 90-percent of GDP as early as next year. It projected that Finland’s public debt would rise to 92.3 of GDP by 2027.
Finland has a budget cap of 4.4 percent of GDP and that is expected to rise to 4.5 percent, according to news agency Reuters.
“In Finland’s situation, the deficit in excess of three percent of GDP in 2025 can only be partly explained by the increase in defence spending and the flexibility granted under the national escape clause. Therefore … the Commission will consider proposing to open an excessive deficit procedure for Finland,” the Commission said, Reuters reported.
The finance ministry announced in the early summer that Finland had avoided the procedure, saying that the Commission understood the exceptional situation facing the country, as it spent a significant amount on bolstering its defence.
The procedure
According to the European Commission, the Excessive Debt Procedure includes a number of key steps.
It starts with the Commission issuing a report about whether the member state in question is running an excessive deficit. If that is the case, it informs the Council about the matter, then proposes that the Council “adopt a decision establishing that there is an excessive deficit in the member state concerned”.
If the Council concludes the country in question is carrying excessive debt, it will then adopt a recommendation — based on one issued by the Commission — setting out how it should be addressed.
“The recommendation may contain a corrective budgetary path, expressed in numerical terms, and a deadline,” the Commission’s page on the procedure explained.
The country in question then needs to take action within six months.
“If, by the deadline, no effective action has been taken, or the member state does not comply with the recommendation, the Council may impose sanctions, including, for euro area member states, a fine of up to 0.05 percent of the previous year’s GDP,” it explained.
That fine needs to be paid every six months until the Council determines that the country has taken effective action.
“If the member state continues to fail to comply, the Council has the right to intensify the sanctions,” the Commission explained.