The European Commission is set to issue formal warnings to ten EU countries, including France, Italy and Bulgaria, over breaches of the bloc's budget deficit limits. Under EU fiscal rules, member states must keep their deficits below three percent of GDP, a threshold now back in force after temporary suspensions during the pandemic and energy crisis. Bulgaria, which recently joined the eurozone, is expected to see its deficit rise to 4.1 percent of GDP this year, up from 3.5 percent in 2025, drawing a rebuke despite warnings from President Rumen Radev about worsening public finances. Germany, projected to hit a 3.7 percent deficit this year and 4.1 percent in 2025, will avoid censure due to an exemption for increased defence spending linked to Russia's war in Ukraine.
France is on track for a 5.7 percent deficit by 2027, the highest in the bloc, according to the Commission, raising pressure for austerity ahead of a presidential election year. Prime Minister Sebastien Lecornu has committed to reducing the deficit below three percent by 2029. Italy's deficit is expected to fall to 2.9 percent in 2026 and 2027, slightly better than peers, but Prime Minister Giorgia Meloni is calling for flexibility to exclude energy relief spending from deficit calculations. The EU executive maintains that sufficient funds have already been made available for energy investments. The European Bank for Reconstruction and Development downgraded its growth forecast to 3.1 percent across its regions this year from 3.4 percent in 2025, citing soaring European energy prices.
Gas prices in Europe now exceed those in the United States by a factor of five, with electricity costs also significantly higher, the EBRD reported. The London-based bank had previously cut its forecast by 0.5 percentage points following the onset of the US-Iran conflict at the end of February. In April, it announced a five billion euro ($5.8 billion) support package for economies affected by the Middle East war.
Germany faces a 4.1 percent deficit but escapes EU rebuke by classifying extra spending as defence, while Bulgaria gets reprimanded for a 4.1 percent deficit without such a shield. This exposes a double standard in how the EU applies its own fiscal rules. Countries without strategic exemptions are penalised despite similar economic pressures. The same energy shocks affecting Germany are hitting Bulgaria just as hard, yet only one gets a pass.
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