The European Union’s new fiscal framework is being stretched by exemptions and discretionary enforcement just as government debt begins rising again, according to a new assessment by the European Fiscal Board.
The Board’s examination of the first full year under the rules, which entered into force in April 2024, found that several member states deviated from the expenditure paths agreed with Brussels during 2025. Yet the formal consequences of those deviations remained limited.
The watchdog said the excessive-deficit procedure remains effectively the EU’s principal enforcement instrument, but identified what it described as a tendency towards “forbearance”, with informal guidance increasingly replacing formal Treaty-based enforcement.
That distinction matters. A number of EU countries are already subject to excessive-deficit procedures, including Austria, Belgium, Finland, France, Hungary, Italy, Poland, Romania and Slovakia. Bulgaria was added in July after its deficit was projected to reach 4.1 per cent of GDP in 2026. The Council’s current record of excessive-deficit procedures sets out the corrective paths applying to each country.
EU Today reported in July that Bulgaria’s entry into the procedure came only months after it joined the euro, creating an early test of how firmly the revised fiscal regime would be applied.
The Fiscal Board’s latest criticism, however, goes beyond countries formally breaching the EU’s 3 per cent deficit threshold. It concerns how Brussels responds when governments depart from the net expenditure paths at the centre of the new framework.
Exceptions become part of the rules
The reformed Stability and Growth Pact was intended to replace much of the previous system’s complexity with country-specific medium-term fiscal plans. Governments agree a net expenditure trajectory designed to bring deficits under control and place public debt on a sustainable path over several years.
The Fiscal Board says the system has made a workable start, but it has raised concerns over the Commission’s compliance classifications, the calculation of spending deviations and the increasing use of discretion when deciding whether formal corrective action is required.
The problem has become more visible as governments confront spending pressures that were not fully reflected when many of their fiscal plans were drawn up.
Defence produced the first major exception. Member states were allowed to activate national escape clauses permitting additional military spending without the full amount counting against their normal expenditure limits.
The rationale was straightforward: European governments were being asked to increase defence spending rapidly while remaining inside fiscal trajectories agreed before the scale of the rearmament programme became clear.
But the flexibility did not remain confined to defence.
The Fiscal Board has specifically criticised the decision to allow some fiscal room associated with the defence escape clause to cover energy-resilience measures. EU Today reported in June that the watchdog believed repurposing defence-related flexibility for energy measures risked weakening the fiscal framework.
Italy has provided one of the clearest examples of how the exemptions can interact. Rome subsequently chose to use its available fiscal flexibility fully for energy measures while using only part of its defence allowance, illustrating how governments can allocate exceptional budget room between competing priorities. EU Today examined that Italian decision in August.
The Board’s concern is not that defence expenditure or measures addressing energy vulnerability are necessarily unjustified. It is that successive exceptions can gradually turn supposedly binding expenditure paths into negotiable reference points.
Debt begins climbing again
The warning comes as the broader fiscal position is deteriorating.
According to the Commission’s Spring 2026 Economic Forecast, EU government debt stood at 82.8 per cent of GDP at the end of 2025 and is projected to rise to 85.3 per cent by the end of 2027.
The aggregate government deficit is also expected to increase from 3.1 per cent of GDP in 2025 to 3.6 per cent in 2027.
The Commission attributes the deterioration to several pressures operating simultaneously: weaker economic activity, rising interest expenditure, higher defence spending and measures intended to protect consumers and businesses from elevated energy prices.
These pressures are particularly difficult for governments already carrying large debt burdens. Defence expenditure may receive temporary protection when compliance with EU spending rules is assessed, but governments still have to borrow or raise revenue to finance it.
Higher borrowing costs are adding another layer to the problem. EU Today has already examined how rising sovereign yields are colliding with Europe’s plans to spend more on defence, infrastructure and energy security.
The fiscal pressures are also appearing in countries that previously had substantial room to borrow. Germany, for example, is embarking on a major expansion of defence and infrastructure expenditure, with EU Today reporting that Berlin’s borrowing plans have placed Europe’s largest economy inside the wider debate over fiscal discipline.
The question raised by the Fiscal Board is therefore no longer simply whether the new rules are sufficiently flexible to accommodate war, energy shocks and weak growth.
It is whether a system built around agreed expenditure paths can retain credibility if governments increasingly expect another exemption whenever a new spending priority emerges.
The revised framework was supposed to make EU fiscal discipline more realistic and therefore more enforceable. Its first full year is beginning to test the second half of that proposition.
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