(Bloomberg) -- The European Union will impose a stricter fiscal path on the Netherlands, forcing it to limit its spending more aggressively after the traditionally financially disciplined country ignored recommendations from the bloc’s executive arm.
The government in the Hague submitted a medium-term plan for the next four years that exceeded the trajectory provided as a reference by the European Commission last June, Vice President Valdis Dombrovskis told reporters. That trajectory provided by the EU executive will now become compulsory.
The commission on Tuesday signed off most of the region’s 2025 budgets and medium term plans submitted by EU member states that for the first time were assessed under the bloc’s new fiscal regulation.
The rules provide national governments more leeway to decide their adjustment path to reduce their deficit and debt levels under the reference values of 3% and 60% of gross domestic product respectively. The rulebook also now features a more robust enforcement system.
The Netherlands proposed an average 4.2% net expenditure growth per year over its four-year plan, compared with the reference trajectory of 3.2% issued by the commission, Dombrovskis said. For this reason, the commission also found the Dutch budget for next year in breach of its recommendations.
Following talks between The Hague and Brussels, the commission proposed that the Dutch government complies with the expenditure ceiling recommended in June. The recommendation must be confirmed by the Council, which brings together the member states, in the coming weeks.
Commenting on the decision, Dutch Finance Minister Eelco Heinen said that the Netherlands currently is “more than compliant with EU rules.”
“We are in good shape,” he told reporters in The Hague. “In the long term, however, spending and debt are indeed increasing, and therefore I have to call for more measures and I embrace this. We are only at the beginning of addressing and improving our finances.”
General gross debt in the country was at 45.1% of GDP last year, while its deficit was at just 0.4% — both well within the EU’s limits. That compares with euro-area readings of 88.9% and 3.6% respectively. Still, the commission’s latest forecasts sees Dutch deficit widening in 2025 and 2026.
The Dutch waived their right to resubmit a revised medium-term plan and instead accepted the EU’s recommendations, Dombrovskis said.
The commission also found France’s budget for next year in line with Brussels recommendations, and expanded the timeline to reduce its public debt from four to seven years, as Bloomberg previously reported.
Dombrovskis said that Paris’s medium-term proposal is more demanding than the EU executive recommended given the worsened starting position compared with June, with the deficit now projected above 6% of GDP. As a result, France’s net expenditure growth will be only 1.1% of GDP compared with 1.6% recommended by the commission.
“It is important that France has ambitious fiscal plans,” he said.
In the case of Germany, Dombrovskis said that he has been in contact with the country’s new finance minister, Joerg Kukies, who — given that snap elections are scheduled for Feb. 23 — will request another extension for the submission of fiscal plans.
For the group of euro-area economies as a whole, the commission recommends governments continue to reduce debt levels accumulated in past years to overcome the Covid pandemic and the energy crisis.
However, keeping the budgets tight clashes with the massive investment needs the bloc faces that could amount to €800 billion ($842 billion), according to former European Central Bank president Mario Draghi.
The commission argues that in spite of the limited expenditure, national governments will be able to keep their public investments going thanks to the billions of euros coming from the EU post-pandemic recovery fund.
--With assistance from Patrick Van Oosterom.
(Updates with Dutch deficit numbers starting in ninth paragraph)
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