European countries facing ‘financial nightmare’ as deficits spike | World | News
European countries France and Italy have been warned by the Bank of America that they could be facing a financial nightmare after as their deficits rise dramatically.
The bank has cautioned the two countries about having to enact excessive deficit procedures with consolidation efforts and fiscal monitoring expected for next year.
The warning comes as Giancarlo Giorgetti, Italy’s Finance Minister warned that the European Commission may have to start an excessive deficit procedure against the country.
Excessive deficit procedures require members of the European Union to change deficit and debt levels under Article 126 of the treaty that governs the functioning of the European Union.
The European Commission can begin the procedure if a country is about to or might breach a deficit threshold set at three percent of its GDP. Either this or if it keeps its debt level over 60 percent of its GDP.
This week, Italy is due to reveal its Economic and Financial document that will provide information on the government’s deficit ramifications in the future. Recent figures from Istat, the country’s statistics office changed the country’s 2023 deficient from over 5 percent to over 7 percent of GDP
Mr Giorgetti said that Italy’s most recent budget plan, which could be changed later this week, was in alignment with requirements from the European Union that would help reduce its fiscal problems over time.
He told Euronews.business: “We are not so naïve as to enter negotiations without understanding the scenario we were entering.”
Italy isn’t the only country in trouble, France is too. A few weeks ago, France said it had a budget deficit of over 5.5 percent for 2023 because of lower-than-predicted revenues.
However, while this is problematic for France, the Bank of America’s Chiara Angeloni said that Italy’s situation was worse and that it had greater fiscal slippage. The bank added that excessive deficit procedures for France, Italy and other members of the European Union were “almost inevitable”.
They added that Germany too was facing issues and that its debt ratio could be 65 percent of GDP by 2027 if defence spending financed by deficit-financing increases by just under one percent.
Should the procedure get triggered, some European countries involved will have to undertake a constant budget correction of half a percent point per year from 2025 onwards.
