REPORT FROM THE COMMISSION Spain, Latvia, Austria, Finland Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union
Date: 2025-06-04
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: EU Member State, budget deficit, budget policy, budgetary control, budgetary expenditure, gross domestic product, macroeconomics, public debt, stability pact, structural adjustment

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 4.6.2025  COM(2025) 615 final  REPORT FROM THE COMMISSION Spain, Latvia, Austria, Finland   Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union   
 
 
1.  INTRODUCTION 

Article 126 of the Treaty on the Functioning of the European Union (TFEU) lays down the 
excessive deficit procedure. That procedure is further set out in Council Regulation (EC) No 
1467/97  on  speeding  up  and  clarifying  the  implementation  of  the  excessive  deficit 
procedure1, which is part of the Stability and Growth Pact. In accordance with Article 126(3) 
TFEU, this report assesses the situation of Member States vis-à-vis the deficit criterion. The 
format of this report, as in previous vintages, helps in the comparability of the different cases, 
while the case of each Member State is considered on its own merits.  

Regulation (EU) 2024/1264 amending Regulation (EC) No 1467/97 entered into force on 30 
April  2024.  This  amending  Regulation  is  part  of  a  package  together  with  Regulation  (EU) 
2024/12632 and Council Directive (EU) 2024/12653. Together, these three acts reformed the 
economic  governance  framework  of  the  Union.  The  objectives  of  the  reformed  framework 
are  public  debt  sustainability,  and  sustainable  and  inclusive  growth  through  reforms  and 
investments.  The  reformed  framework  also  promotes  national  ownership,  and  has  a  greater 
medium-term  focus,  combined  with  a  more  effective  and  coherent  enforcement.  The  latest 
amendment to Regulation (EC) No 1467/97 has essentially kept unchanged the assessment of 
compliance with the deficit criterion. Differently, the assessment of compliance with the debt 
criterion has been substantially modified (see below). 

The previous report under Article 126(3) TFEU was adopted on 26 November 2024, in the 
context of the European Semester 2024 Autumn Package.4  

The deficit and debt criteria 

The deficit criterion is fulfilled if the actual general government deficit for the previous year 
(2024)  and  planned  deficit  for  the  current  year  (2025)  do  not  exceed  3%  of  GDP.  If  either 
does,  the  Commission  examines  whether  the  deficit  ratio  has  declined  substantially  and 
continuously, and comes close to the reference value. It also examines whether the deficit in 
excess  over  the  reference  value  is  exceptional  and  temporary,  and  remains  close  to  the 
reference value (section 2). Relevant factors are to be considered by the Commission and the 
Council in the steps leading to the decision on the existence of an excessive deficit, if either 
i) the government debt does not exceed 60% of GDP, or ii) if the debt exceeds 60% of GDP, 
but the deficit is close to 3% of GDP and the excess over it is temporary (section 4).  

According to the Treaty, the debt criterion is fulfilled if the general government gross debt 
does not exceed 60% of GDP, or if the ratio is sufficiently diminishing and approaching the 
reference  value  at  a  satisfactory  pace.  According  to  Article  2(2)  of  Regulation  (EC)  No 
1467/97 (as amended), the debt-to-GDP ratio shall be considered sufficiently diminishing and 
as  approaching  the  reference  value  at  a  satisfactory  pace  if  the  Member  State  concerned 

1  

2  

3  

4  

Council Regulation (EC) No 1467/97 on speeding up and clarifying the implementation of the 
excessive deficit procedure (OJ L 209, 2.8.1997) as last amended by Council Regulation (EU) 
2024/1264 of 29 April 2024 (OJ L, 2024/1264, 30.4.2024, ELI: 
http://data.europa.eu/eli/reg/2024/1264/oj). 
Regulation  (EU)  2024/1263  of  the  Parliament  and  of  the  Council  of  29  April  2024  on  the  effective 
coordination of economic policies and on multilateral budgetary surveillance and repealing Regulation 
(EC) No 1466/97 (OJ L, 2024/1263, 30.4.2024, ELI: http://data.europa.eu/eli/reg/2024/1263/oj). 
Council Directive (EU) 2024/1265 of 29 April 2024 amending Directive 2011/85/EU on requirements 
for budgetary frameworks of the Member States (OJ L, 2024/1265, 30.4.2024, ELI: 
http://data.europa.eu/eli/dir/2024/1265/oj). 
COM(2024) 959 final. 

1 

 
 
respects its net expenditure5 path as set by the Council under Articles 17 or 19 of Regulation 
(EU) 2024/1263. If the Member State concerned does not respect its net expenditure path, the 
Commission prepares a report in line with Article 126(3) TFEU if the debits6 recorded in the 
Member State’s control account exceed one of two thresholds (unless the budgetary position 
is  close to  balance or in surplus).  These thresholds are 0.3% of GDP annually and 0.6% of 
GDP cumulatively. 
The  debt  criterion  cannot  be  fully  assessed  at  this  stage7.  For  some  Member  States,  the 
Council has not yet set a net expenditure path. In addition, Article 22(6) of Regulation (EU) 
2024/1263 provides that deviations  from  the net expenditure path  as set  by the Council are 
recorded as debits (or credits) in the control account on the basis of outturn data. For those 
Member States with a net expenditure path set by the Council, the initial year of the path is 
2025. The assessment of compliance with the debt criterion can thus only be undertaken by 
the Commission once the outturn data for 2025 are available in spring 2026. 

Main data underlying and motivating this report 

In the assessment of the deficit criterion, the present report concerns those Member States for 
which  the  actual  2024  deficit  ratio  provided  by  Eurostat,8  or  the  planned  deficit  ratio  for 
20259,  exceeds  3%  of  GDP.10  Moreover,  the  assessment  of  compliance  with  the  deficit 
criterion  also  considers  the  European  Commission  Spring  2025  Forecast11.  This  report  also 
compares  the  government  deficit  with  government  investment  expenditure  and  takes  into 
account  all  other  relevant  factors,  in  accordance  with  Article  2  of  Regulation  (EC)  No 
1467/97. 

Based on the data provided by Eurostat on 22 April 2025 (see Table 1), this report  assesses 
compliance  with  the  deficit  criterion  in  four  Member  States:  Spain,  Latvia,  Austria, 
Finland. Specifically: 

-  For  Spain,  Austria  and  Finland,  the  2024  general  government  deficits  exceeded  3%  of 
GDP. This provides prima facie evidence of the existence of excessive deficits in each of 
those Member States.  

- 

In addition, according to the spring 2025 fiscal notification, Latvia plans its government 
deficit  to  exceed  3%  of  GDP  in  2025.  The  planned  deficit  for  2025  is  also  prima  facie 
evidence of the existence of an excessive deficit. 

As  indicated  above,  the  debt  criterion  cannot  be  fully  assessed  at  this  stage  in  accordance 
with  the  criteria  of  the  new  framework.  For  the  data  on  the  general  government  gross  debt 
ratio-to-GDP, see Table 3. 

5   

6  

7  
8  

9  

10  
11  

According  to  Article  2(2)  of  Regulation  (EU)  2024/1263,  'net  expenditure'  means  government 
expenditure net of interest expenditure, discretionary revenue measures, expenditure on programmes of 
the  Union  fully  matched  by  revenue  from  Union  funds,  national  expenditure  on  co-financing  of 
programmes  funded  by  the  Union,  cyclical  elements  of unemployment  benefit  expenditure,  and one-
offs and other temporary measures. 
In  the  control  account  set  by  the  Commission  in  accordance  with  Article  22(2)  to  keep  track  of 
deviations from the net expenditure path set by the Council, upward deviations are registered as debits. 
Figures on general government debt-to-GDP ratio are presented in section 3.  
See Eurostat Euro indicators of 22 April 2025 (https://ec.europa.eu/eurostat/en/web/products-euro-
indicators/w/2-22042025-AP), in accordance with Article 14 of Council Regulation (EC) No 479/2009. 
The complete set of tables reported to Eurostat by Member States is available at: http://ec.europa.eu 
/eurostat/web/government-finance-statistics/excessive-deficit-procedure/edp-notification-tables. 
Member States currently under excessive deficit procedure are not concerned by the present report. 
Unless  stated  otherwise,  the  source  for  the  figures  for  2025  and  2026  provided  in  this  report  is  the 
European Commission Spring 2025 Forecast (European Economy Institutional Papers 318). 

2 

 
 
Table 1 - Member States’ position vis-à-vis the deficit and debt reference values 

Actual deficit 
not exceeding (✓) 
/ exceeding (✗) 
3% of GDP in 
2024 

Planned deficit 
not exceeding (✓) /  
exceeding (✗) 
3% of GDP in 2025 

Debt ratio  
not exceeding (✓) / 
exceeding (✗) 60% 
of GDP at end-
2024 

Member States assessed in this report 
Spain 
Latvia 
Austria 
Finland 

✗ 
✓ 
✗ 
✗ 

Member States not considered in this report 
Belgium* 
Bulgaria 
Czechia  
Denmark 
Germany 
Estonia 
Ireland 
Greece 
France* 
Croatia 
Italy* 
Cyprus 
Lithuania 
Luxembourg 
Hungary* 
Malta* 
Netherlands 
Poland* 
Portugal 
Romania** 
Slovenia 
Slovakia* 
Sweden 

✗ 
✓ 
✓ 
✓ 
✓ 
✓ 
✓ 
✓ 
✗ 
✓ 
✗ 
✓ 
✓ 
✓ 
✗ 
✗ 
✓ 
✗ 
✓ 
✗ 
✓ 
✗ 
✓ 

✓ 
✗ 
✗ 
✗ 

✗ 
✓ 
✓ 
✓ 
✓ 
✓ 
✓ 
✓ 
✗ 
✓ 
✗ 
✓ 
✓ 
✓ 
✗ 
✗ 
✓ 
✗ 
✓ 
✗ 
✓ 
✗ 
✓ 

✗ 
✓ 
✗ 
✗ 

✗ 
✓ 
✓ 
✓ 
✗ 
✓ 
✓ 
✗ 
✗ 
✓ 
✗ 
✗ 
✓ 
✓ 
✗ 
✓ 
✓ 
✓ 
✗ 
✓ 
✗ 
✓ 
✓ 

Source: Eurostat (press release of 22 April 2025 and spring 2024 fiscal notification).  
Note: (*) In excessive deficit procedure since July 2024. (**) In excessive deficit procedure since April 2020. 

3 

 
 
 
 
 
 
 
 
 
 
 
2.  GENERAL GOVERNMENT BALANCE 

Spain,  Austria  and  Finland  exceeded  the  deficit  reference  value  in  2024.  Austria  and 
Finland also plan their deficits for 2025 to be above 3% of GDP. Latvia had a government 
deficit below the reference value in 2024, but plans a deficit for 2025 exceeding 3% of GDP 
(see Table 2). 

In  Austria  and  Finland,  the  2024  government  deficits  were  above  and  not  close  to  the 
reference value. For Spain, the deficit was above but close to the reference value.  
For Latvia, the planned deficit for 202512 amounts to 3.1% of GDP (the same value as in the 
Commission Spring 2025 Forecast) and therefore above but close to 3% of GDP.  

According to the Commission Spring 2025 Forecast, the government deficits in Austria and 
Finland are projected to continue exceeding 3% of GDP in 2025 and in 2026. Therefore, their 
deficits  in  excess  of  the  reference  value  are  expected  to  be  not  temporary.  Differently,  the 
government deficit in Spain is currently projected not to exceed the reference value in 2025 
and in 2026, thus the deficit in excess of the reference value is expected to be temporary. For 
Latvia,  the  government  deficit  is  projected  to  exceed  3%  of  GDP  in  both  2025  and  2026 
marginally; thus, the excess deficit is expected to be not temporary. 

For  Spain,  the  deficit  in  excess  of  the  reference  value  in  2024  is  related  to  the  budgetary 
impact of the devastating DANA13 flood of October 2024. This is recognised and analysed as 
a  relevant  factor  (see  section  4.2.1  on  Spain),  but  the  excess  is  considered  to  be  not 
exceptional for the purposes of the Treaty and the Stability and Growth Pact. 

In Latvia, the planned deficit in excess of the reference value in 2025 is fully explained by an 
increase in defence spending14. On 28 April 2025, Latvia has put forward a request to activate 
the  national  escape  clause  to  accommodate  increased  defence  expenditure,  in  line  with  the 
Commission Communication of 19 March 2025.15 The Commission has assessed the request 
and,  on  4  June  2025,  has  adopted  a  Recommendation  for  a  Council  Recommendation 
allowing Latvia to deviate from, and exceed, the recommended net expenditure path16 during 
the period 2025-2028.17 This documents the exceptional circumstances outside the control of 
the government with a major impact on public finances underpinning the increase in defence 
spending.  In view of this,  and subject  to  the  adoption of the Council Recommendation,  the 
planned excess over the reference value in 2025 is considered exceptional. 

In Austria and Finland, the deficit in excess of the reference value in 2024 has been impacted 
by very unfavourable macroeconomic conditions, that is, a prolonged recession in 2023 and 
2024. In Austria, real GDP decreased by 1.0% in 2023 and 1.2% in 2024, and is projected in 
the Commission Spring 2025 Forecast to further decrease by 0.3% in 2025. In Finland, real 

12  
13  
14  

15  
16  

17  

As reported to Eurostat in the context of the spring 2025 fiscal notification. 
DANA stands for “Depresión aislada en niveles altos”, or “Isolated depression at high levels”. 
According to the Commission Spring 2025 Forecast, defence spending in Latvia is estimated at 3.0% of 
GDP in 2024 and projected to rise to 3.3% in 2025, an increase by 0.8% of GDP compared to 2021. 
Commission Communication (C (2025) 2000 final) of 19 March 2025. 
Commission  Recommendation  for  a  Council  Recommendation  allowing  Latvia  to  deviate  from,  and 
exceed, the recommended net expenditure path, 4.6.2025, COM(2025) 610 final. 
According  to  Article  2(1)  of  Regulation  1467/97,  the  excess  of  the  government  deficit  over  the 
reference value shall be considered exceptional, in accordance with the second indent of point (a) of 
Article 126(2). of the Treaty on the Functioning of the European Union (TFEU), if it results from the 
existence of a severe economic downturn in the euro area or the Union as a whole established by the 
Council  in  accordance  with  Article  25  of  Regulation  (EU)  2024/1263  or  from  exceptional 
circumstances outside the control of the government with a major impact on the public finances of the 
Member State concerned, in accordance with Article 26 of that Regulation. 

4 

 
 
GDP decreased by 0.9% in 2023 and 0.1% in 2024, while it is forecast to increase by 1.0% in 
2025. In addition, in Finland the worsening security environment due to the Russia’s war of 
aggression  against Ukraine has sizeable  repercussions on its  public finances. Based on this, 
the  deficits  in  excess  of  the  reference  value  can  be  considered  as  exceptional  for  both 
Member States. 

In  sum,  this  analysis  suggests  that  the  deficit  criterion  is  not  fulfilled  in  Spain,  Latvia, 
Austria, and Finland, before the consideration of the relevant factors.  

5 

 
 
Table 2 - General government balance 

Percentage of GDP 

Spring fiscal 
notification 

European Commission 
Spring 2025 Forecast 

2021 

2022 

2023 

2024 

2025 

2025 

2026 

Member States assessed in this report 

Spain 

Latvia 

Austria 

Finland 

-6.7 

-7.2 

-5.7 

-2.7 

-4.6 

-4.9 

-3.4 

-0.2 

-3.5 

-2.4 

-2.6 

-3.0 

Member States not considered in this report 

Belgium* 

Bulgaria 

Czechia 

Denmark 

Germany 

Estonia 

Ireland 

Greece 

France* 

Croatia 

Italy* 

Cyprus 

Lithuania 

Luxembourg 

Hungary* 

Malta* 

Netherlands 

Poland* 

Portugal 

Romania** 

Slovenia 

Slovakia* 

Sweden 

-5.4 

-4.0 

-5.0 

4.1 

-3.2 

-2.6 

-1.4 

-7.1 

-6.6 

-2.6 

-8.9 

-1.6 

-1.2 

1.0 

-7.1 

-7.0 

-2.2 

-1.7 

-2.8 

-7.1 

-4.6 

-5.1 

-0.2 

-3.6 

-3.0 

-3.1 

3.4 

-2.1 

-1.1 

1.7 

-2.5 

-4.7 

0.1 

-8.1 

2.7 

-0.7 

0.2 

-6.2 

-5.2 

0.0 

-3.4 

-0.3 

-6.4 

-3.0 

-1.7 

1.0 

-4.1 

-2.0 

-3.8 

3.3 

-2.5 

-3.1 

1.5 

-1.4 

-5.4 

-0.8 

-7.2 

1.7 

-0.7 

-0.8 

-6.7 

-4.7 

-0.4 

-5.3 

1.2 

-6.6 

-2.6 

-5.2 

-0.8 

-3.2 

-1.8 

-4.7 

-4.4 

-4.5 

-3.0 

-2.2 

4.5 

-2.8 

-1.5 

4.3 

1.3 

-5.8 

-2.4 

-3.4 

4.3 

-1.3 

1.0 

-4.9 

-3.7 

-0.9 

-6.6 

0.7 

-9.3 

-0.9 

-5.3 

-1.5 

-2.5 

-3.1 

-4.5 

-3.5 

-5.2 

-2.9 

-2.2 

1.6 

-2.5 

-3.0 

1.6 

-0.6 

-5.4 

-2.3 

-3.3 

2.7 

-3.0 

-0.9 

-3.7 

-3.5 

-1.8 

-6.3 

0.3 

-7.0 

-1.9 

-4.7 

-1.3 

-2.8 

-3.1 

-4.4 

-3.7 

-5.4 

-2.8 

-2.3 

1.5 

-2.7 

-1.4 

0.7 

0.7 

-5.6 

-2.7 

-3.3 

3.5 

-2.3 

-0.4 

-4.6 

-3.2 

-2.1 

-6.4 

0.1 

-8.6 

-1.3 

-4.9 

-1.5 

-2.5 

-3.1 

-4.2 

-3.4 

-5.5 

-2.8 

-2.2 

0.6 

-2.9 

-2.4 

0.1 

1.4 

-5.7 

-2.6 

-2.9 

3.4 

-2.3 

-0.5 

-4.7 

-2.8 

-2.7 

-6.1 

-0.6 

-8.4 

-1.5 

-5.1 

-0.8 

Source:  Eurostat  (data  from  2021  to  2024,  and  2025  fiscal  notification)  and  European  Commission 
Spring 2025 Forecast (data for 2025 and 2026).  
Note: (*) In excessive deficit procedure since July 2024. (**) In excessive deficit procedure since April 
2020. 

6 

 
 
 
 
 
 
 
 
3.  GENERAL GOVERNMENT DEBT 

Among  the  Member  States  discussed  in  this  Report,  the  general  government  gross  debt  at 
end-2024  exceeded  60%  of  GDP,  and  hence  the  reference  value,  in  three  Member  States: 
Spain,  Austria  and  Finland  (see  Table  3).  For  Spain,  the  government  debt-to-GDP  ratio 
decreased  in  2024  compared  to  the  previous  year,  whereas  it  increased  in  Austria  and 
Finland. Based on the Commission Spring 2025 Forecast, the debt-to-GDP ratios in Austria, 
and Finland are projected to rise in both 2025 and 2026, while a decrease is anticipated for 
Spain. 

Latvia’s  government  debt  at  end-2024  was  below  60%  of  GDP  and  this  is  expected  to 
continue in 2025 and 2026. 

7 

 
 
Table 3 – General government debt 

Percentage of GDP 

Spring fiscal 
notification 

European Commission 
Spring 2025 Forecast 

2021 

2022 

2023 

2024 

2025 

2025 

2026 

Member States assessed in this report 

Spain 

Latvia 

Austria 

Finland 

115.7 

109.5 

105.1 

101.8 

101.5 

100.9 

100.8 

45.9 

44.4 

44.6 

46.8 

82.4 

78.4 

78.5 

81.8 

73.2 

74.0 

77.5 

82.1 

49.7 

84.7 

85.0 

48.6 

84.0 

85.6 

49.3 

85.8 

87.5 

Member States not considered in this report 

Belgium* 

Bulgaria 

Czechia  

Denmark 

Germany 

Estonia 

Ireland 

Greece 

France* 

Croatia 

Italy* 

Cyprus 

Lithuania 

Luxembourg 

Hungary* 

Malta* 

Netherlands 

Poland* 

Portugal 

Romania** 

Slovenia 

Slovakia* 

Sweden 

108.5 

102.7 

103.2 

104.7 

106.9 

107.1 

109.8 

23.8 

22.5 

22.9 

24.1 

40.7 

42.5 

42.5 

43.6 

40.5 

34.1 

33.6 

31.1 

68.1 

65.0 

62.9 

62.5 

18.4 

19.1 

20.2 

23.6 

52.6 

43.1 

43.3 

40.9 

197.3 

177.0 

163.9 

153.6 

112.8 

111.4 

109.8 

113.0 

78.2 

68.5 

61.8 

57.6 

145.8 

138.3 

134.6 

135.3 

96.5 

81.1 

73.6 

65.0 

43.3 

38.1 

37.3 

38.2 

24.2 

24.9 

25.0 

26.3 

76.2 

73.9 

73.0 

73.5 

49.8 

49.5 

47.9 

47.4 

50.5 

48.4 

45.2 

43.3 

53.0 

48.8 

49.5 

55.3 

123.9 

111.2 

97.7 

94.9 

48.3 

47.9 

48.9 

54.8 

74.8 

72.7 

68.4 

67.0 

60.2 

57.7 

55.6 

59.3 

36.9 

33.8 

31.6 

33.5 

28.9 

44.5 

30.0 

62.9 

24.3 

37.3 

145.7 

116.2 

56.0 

136.6 

60.9 

44.1 

26.9 

72.6 

50.1 

44.5 

57.8 

91.8 

57.7 

66.0 

59.9 

34.3 

25.1 

44.5 

29.7 

63.8 

23.8 

38.7 

146.6 

116.0 

56.3 

136.7 

58.0 

41.2 

25.7 

74.5 

47.6 

45.0 

58.0 

91.7 

59.4 

65.5 

60.9 

33.8 

27.1 

45.4 

29.4 

64.7 

25.4 

38.3 

140.6 

118.4 

56.4 

138.2 

51.9 

43.9 

26.2 

74.3 

47.3 

47.8 

65.3 

89.7 

63.3 

63.8 

63.0 

33.3 

Source:  Eurostat  (data  from  2021  to  2024,  and  2025  fiscal  notification)  and  European  Commission 
Spring 2025 Forecast (data for 2025 and 2026).  
Note: (*) In excessive deficit procedure since July 2024. (**) In excessive deficit procedure since April 
2020. 

8 

 
 
 
 
 
 
 
 
4.  RELEVANT  FACTORS  WHEN  ASSESSING  COMPLIANCE  WITH  THE  DEFICIT 

CRITERION  

Article 126(3) of the Treaty provides that, for each Member State, this report shall “take into 
account whether the government deficit exceeds government investment expenditure and take 
into account all other relevant factors, including the medium-term economic and budgetary 
position of the Member State”.  

Those  factors  are  further  clarified  in  Article  2(3)  of  Regulation  (EC)  No  1467/97,  as 
amended,  and refer to:  

a)  the  medium-term  debt  position,  i.e.,  the  degree  of  public  debt  challenges,  the 
evolution  of  the  government  debt  position  and  its  financing,  and  the  related  risk 
factors, in particular the maturity structure, the currency denomination of the debt and 
contingent  liabilities,  including  any  implicit  liabilities  related  to  ageing  and  private 
debt; 

b)  the  medium-term  budgetary  position,  including,  in  particular,  the  size  of  the  actual 
deviation  from  the  net  expenditure  path  as  set  by  the  Council,  in  annual  and 
cumulative terms as measured by the control account; 

c)  the  medium-term  economic  position, 

inflation 
developments and cyclical developments compared to the assumptions underlying the 
net expenditure path as set by the Council; 

including  potential  growth, 

d)  the  implementation  of  reforms  and  investments,  including  in  particular  policies  to 
prevent  and  correct  macroeconomic  imbalances  and  policies  to  implement  the 
common growth and employment strategy of the Union, including those supported by 
the  Recovery  and  Resilience  Facility  (RRF),  and  the  overall  quality  of  public 
finances, in particular the effectiveness of national budgetary frameworks;  

e)  the increase of government investment in defence, where applicable, considering also 
the time of recording of military equipment expenditure. The increase in government 
investment in defence has been included among the relevant factors, as a result of the 
reform of the economic governance framework.  

Article 2(3) of Regulation (EC) No 1467/97 provides also that “any other factors which, in 
the opinion of the Member State concerned, are relevant in order to comprehensively assess 
compliance with the deficit and debt criteria and which the Member State has put forward to 
the Council and the Commission” need to be given due consideration in this report. 

Furthermore, in accordance with Article 2(4) of Regulation (EC) No 1467/97, the presence of 
substantial public debt challenges is a key aggravating factor.  

As  regards  the  assessment  of  compliance  with  the  deficit  criterion,  Article  2(4)  of  Council 
Regulation  (EC)  No  1467/97  further  provides  that  the  relevant  factors  can  be  taken  into 
account  by  the  Council  and  the  Commission  in  the  steps  leading  to  the  decision  on  the 
existence of an excessive deficit only when: 

a)  the government debt-to-GDP ratio does not exceed the 60% reference value, 

or 

b)  if  the  government  debt-to-GDP  ratio  exceeds  the  60%  reference  value,  a  double 
condition is met – i.e. that the deficit remains close to the reference value and that the 
excess over the reference value is temporary. 

9 

 
 
The  debt-to-GDP  ratio  does  not  exceed  the  60%  reference  value  in  Latvia.  Therefore,  for 
Latvia, relevant factors can be taken into account by the Council and the Commission in the 
subsequent steps leading to the decision on the existence of an excessive deficit (paragraphs 5 
and 6 of Article 126 TFEU).  

The  debt-to-GDP  ratio  exceeds  the  60%  of  GDP  reference  value  in  Spain.  However  the 
double condition (closeness and temporariness) is met; therefore relevant factors can be taken 
into account by the Council and the Commission in the steps leading to the decision on the 
existence of an excessive deficit. 

As  for  the  remaining  Member  States  concerned  by  the  report,  in  Austria  and  Finland,  the 
debt-to-GDP  ratio  exceeds  the  60%  reference  value  and  the  double  condition  necessary  for 
relevant factors to be taken into account (closeness and temporariness) is not met. Therefore, 
for these Member States relevant factors cannot be taken into account by the Council and the 
Commission  in  the  steps  leading  to  the  decision  on  the  existence  of  an  excessive  deficit 
(paragraphs 5 and 6 of Article 126 TFEU).   

According  to  established  practice  and  in  line  with  Article  2(4)  of  Regulation  (EC)  No 
1467/97, the relevant factors are discussed hereunder even for the Member States where they 
cannot  be  taken  into  account  by  the  Council  and  the  Commission  in  the  subsequent  steps 
leading  to  the  decision  on  the  existence  of  an  excessive  deficit  on  the  basis  of  the  deficit 
criterion.  

4.1. CROSS-COUNTRY RELEVANT FACTORS  

The EU economy was faced with a series of negative shocks in recent years. Russia’s war of 
aggression  against  Ukraine  steepened  the  surge  of  energy  prices  that  had  already  started  in 
2021, and economic effects across Member States varied depending on the proximity to the 
region at war, the structure of energy markets and supply routes, as well as the structure of a 
Member State’s trade relations. HICP inflation was pushed to two-digit rates in October 2022 
in  the  EU  as  a  whole,  with  inflation  in  central  and  eastern  Europe  being  markedly  higher. 
This led to a sharp erosion of household purchasing power and a shift in consumer sentiment. 
These factors, in addition to the COVID-19 support and emergency energy support measures, 
played a role in budgetary developments of Member States, via e.g. the delayed adjustment of 
certain tax bases to inflation, automatic indexation mechanisms and increased expenditure for 
defence and border safety.  

Economic activity in the EU as whole was picking up in 2024, with real GDP growth rising 
to  1.0%  in  2024  from  0.5%  in  2023.  While  the  conditions  for  a  gradual  acceleration  of 
economic activity appeared to be in place, sharply rising trade tensions and uncertainty weigh 
on  the  outlook.  Meanwhile,  inflation  has  continued  declining,  decreasing  from  a  peak  of 
9.2%  in  2022  to  2.6%  in  2024.  According  to  the  European  Commission  Spring  2025 
Forecast, EU real GDP growth is projected at 1.1% in 2025. The disinflation process is set to 
continue, with headline inflation falling to 2.3% in 2025 from 2.6% in 2024. 

Concerning the aggregate EU government deficit, after a sizeable reduction in 2021 and 2022 
from very high levels in 2020, the deficit increased marginally to 3.5% of GDP in 2023 and 
then fell to  3.2% of GDP in  2024. In  2025, the  aggregate deficit is  projected to  marginally 
increase to 3.3% of GDP. 

At  the  end  of  2024,  the  EU  government  debt-to-GDP  ratio  stood  at  82.2%,  broadly 
unchanged compared to 2023 (82.1%) and around 9 pps. lower than the 91.2% peak recorded 
at  the  end  of  2020,  when  public  debt  ratios  increased  substantially  as  result  of  COVID-19 
crisis.  However, it remains around 4 pps. above the pre-COVID-19 level. According to  the 

10 

 
European Commission  Spring 2025 Forecast,  the  debt  ratio is projected to  rise to  83.2% of 
GDP in 2025.  
After a sizeable expansion overall in 2020-23, the fiscal stance18 in 2024 was contractionary 
at  0.4%  of  GDP,  driven  by  the  phase-out  of  support  to  private  investment  and  somewhat 
lower expenditure financed by the EU budget (including due to the end of spending under the 
Multiannual  Financial  Framework  2014-2020).  This  was  only  slightly  offset  by  an 
expansionary  contribution  from  public  investment  financed  by  national  budgets.  The  fiscal 
stance  in  2025  is  projected  to  be  broadly  neutral  (below  1/4%  of  GDP),  with  the 
contractionary  contribution  from  national  budgets  largely  offset  by  the  expansionary 
contribution from expenditure financed by the EU budget.  

4.2. COUNTRY-SPECIFIC RELEVANT FACTORS  

This  section  provides  an  assessment  of  country-specific  relevant  factors  for  each  Member 
State  concerned  by  this  report.  These  factors  include  the  medium-term  macroeconomic 
outlook, the medium-term budgetary position (including public investment; see Table 4), the 
medium-term  debt  position,  the  overall  quality  of  public  finances,  the  implementation  of 
reforms  and  investments  (including  policies  to  prevent  and  correct  macroeconomic 
imbalances  and  to  implement  the  common  growth  and  employment  strategy  of  the  Union, 
including  those  supported  by  the  RRF),  the  increase  in  government  investment  in  defence, 
and any other relevant factors put forward by each Member State.  

Concerning the increase in government investment in defence, this report uses the breakdown 
of  government  expenditure  that  is  based  on  national  accounts  (ESA  2010)  definitions  with 
respect  to  the  International  Classification  of  the  Functions  of  Government  (COFOG)  for 
defence purposes. However, COFOG data are usually released with a time lag, and they are 
currently  only  available  until  2023  in  Eurostat’s  database.  Additional  information  and 
preliminary  estimates  on  expenditure  and/or  investment  in  defence  for  2024  and  2025  as 
presented  in  the  country-specific  sections  have  been  provided  by  the  respective  Member 
States. 

While  the  country-specific  sections  refer  to  key  information  on  the  medium-term 
macroeconomic position, including on the contributions to growth, and on the medium-term 
budgetary  and  debt  positions,  more  detail  on  the  macroeconomic  and  fiscal  outlook  can  be 
found in the Commission  Spring 2025 Forecast.19  

18  

19  

The  fiscal stance  aims to assess the economic impulse stemming from fiscal policies, both those that 
are nationally financed and those that are financed by the EU budget. 
For  further  information  regarding  fiscal  outlook,  see  also  the  Commission  Recommendations  for  a 
Council Recommendation on the economic, social, employment, structural and budgetary policies, as 
well as the 2025 Country Reports published by the Commission on 4 June 2025. 

11 

 
 
 
 
 
Table 4 - Public investment 

Percentage of GDP 

European Commission 
Spring 2025 Forecast 

2021 

2022 

2023 

2024 

2025 

2026 

Member States assessed in this report 

Spain 

Latvia 

Austria 

Finland 

2.7 

5.6 

3.6 

4.2 

2.7 

4.5 

3.5 

4.1 

Member States not considered in this report 

Belgium* 

Bulgaria 

Czechia 

Denmark 

Germany 

Estonia 

Ireland 

Greece 

France* 

Croatia 

Italy* 

Cyprus 

Lithuania 

Luxembourg 

Hungary* 

Malta* 

Netherlands 

Poland* 

Portugal 

Romania** 

Slovenia 

Slovakia* 

Sweden 

2.8 

2.7 

4.6 

3.2 

2.9 

5.8 

2.0 

3.6 

4.1 

4.8 

2.8 

2.7 

3.2 

4.1 

6.2 

3.7 

3.4 

4.1 

2.6 

4.1 

4.7 

3.0 

5.0 

2.7 

2.4 

4.5 

3.0 

2.8 

5.4 

2.0 

3.7 

4.2 

4.0 

2.6 

2.4 

3.2 

4.3 

5.3 

3.2 

3.2 

3.8 

2.4 

4.4 

5.5 

3.1 

5.1 

3.0 

5.6 

3.7 

4.1 

2.8 

3.8 

4.9 

3.1 

2.8 

6.6 

2.3 

3.9 

4.2 

5.6 

3.2 

3.2 

4.2 

4.7 

5.1 

3.6 

3.1 

5.1 

2.6 

5.4 

5.3 

3.5 

5.3 

2.7 

5.7 

3.9 

4.4 

3.0 

3.0 

4.7 

3.1 

2.9 

6.1 

2.7 

3.7 

4.3 

5.1 

3.5 

3.0 

4.2 

4.5 

4.2 

3.3 

3.2 

4.9 

2.7 

5.7 

5.1 

3.6 

5.4 

3.0 

7.0 

3.9 

4.9 

3.3 

3.6 

4.9 

3.8 

3.0 

7.2 

2.8 

4.2 

4.3 

5.4 

3.8 

3.2 

4.9 

4.7 

4.2 

3.8 

3.2 

5.1 

3.7 

6.1 

5.3 

5.1 

5.5 

3.0 

7.2 

4.0 

4.8 

3.2 

3.3 

4.6 

3.9 

3.0 

7.1 

3.1 

3.8 

4.2 

5.2 

3.9 

3.2 

4.6 

4.6 

4.2 

3.9 

3.3 

5.2 

4.2 

6.5 

5.2 

5.2 

5.6 

Source:  Eurostat  (data  from  2021  to  2024)  and  European  Commission  Spring  2025  Forecast  (data  for 
2025  and  2026).  (*)  In  excessive  deficit procedure  since  July  2024.  (**)  In  excessive  deficit procedure 
since April 2020. 

12 

 
 
 
 
 
 
 
4.2.1. MEMBER STATES FOR WHICH RELEVANT FACTORS CAN BE TAKEN INTO 

ACCOUNT 

SPAIN 

Medium-term macroeconomic position.  Real GDP increased by 2.7% in 2023. Real GDP 
increased further by 3.2% in 2024 mainly driven by the strong evolution of consumption and 
the  contribution  from  external  demand  boosted  by  tourism  activity.  Output  is  projected  to 
increase  in  2025  by  2.6%  and  in  2026  by  2.0%.  The  growth  in  2025  is  mainly  driven  by 
private consumption and the projected pickup in investment steering domestic demand.  

Medium-term  budgetary  position,  including  investment.  Spain’s  general  government 
deficit  decreased  from  3.5%  of  GDP  in  2023  to  3.2%  in  2024.  According  to  the 
Commission’s calculations, these developments correspond to a net expenditure growth rate 
of 3.5% in 2024. Government investment stood at 3.0% of GDP in 2023 and declined slightly 
to  2.7%  in  2024.  Based  on  the  Commission’s  estimates,  the  fiscal  stance20,  which  includes 
both nationally and EU financed expenditure, was contractionary, by 0.3% of GDP, in 2024. 
The growth in nationally financed primary current expenditure (net of discretionary revenue 
measures) in  2024 provided a contractionary contribution  to the fiscal  stance, amounting  to 
0.4% of GDP. 

The Commission Spring 2025 Forecast projects a general government deficit of 2.8% of GDP 
in 2025 and 2.5% in 2026. Government investment is projected to increase to 3.0% of GDP 
in 2025 and 2026. Based on the Commission’s estimates, the fiscal stance is projected to be 
expansionary, by 0.3% of GDP, in 2025. The growth in nationally financed primary current 
expenditure in 2025 is projected to provide a broadly neutral contribution to the fiscal stance. 

According to the Commission Spring 2025 Forecast, net expenditure in Spain is projected to 
grow by 4.2% in 2025 and 7.9% cumulatively in 2024 and 2025. Based on the Commission 
2025 Spring Forecast , the net expenditure growth of Spain in 2025 is projected to be above 
the maximum growth rate recommended by the Council on 21 January 202521, corresponding 
to  a  deviation22  of  0.2%  of  GDP  compared  to  the  recommended  maximum  annual  net 
expenditure  growth  in  2025.  The  projected  deviation  does  not  exceed  the  0.3%  of  GDP 
threshold for the annual deviation. When considering 2024 and 2025 together, the cumulative 
growth rate of net expenditure is projected to be below the recommended maximum growth 
rate. 

Debt  challenges  and  medium-term  debt  position.  The  government  debt  decreased  from 
109.5% at the end of 2022 to 105.1% of GDP at the end of 2023. In 2024 it further decreased 
to 101.8% of GDP. The debt-to-GDP ratio is projected to decrease further to 100.9% of GDP 
at the end of 2025 and 100.8% at the end of 2026. 

Overall, the debt sustainability analysis indicates high risks over the medium term. The debt 
trajectory  is  sensitive  to  macroeconomic  shocks.  According  to  the  stochastic  projections, 

20 

21  

22  

The fiscal stance is defined as a measure of the annual change in the underlying budgetary position of 
the  general  government.  It  aims  to  assess  the  economic  impulse  stemming  from  fiscal  policies,  both 
those  that  are  nationally  financed  and  those  that  are  financed  by  the  EU  budget.  The  fiscal  stance  is 
measured  as  the  difference  between  (i)  the  medium-term  potential  growth  and  (ii)  the  change  in 
primary expenditure net of discretionary revenue measures and including expenditure financed by non-
repayable support (grants) from the Recovery and Resilience Facility and other Union funds. 
Council  Recommendation  of  21  January  2025  endorsing  the  medium-term  fiscal-structural  plan  of 
Spain, OJ C/2025/643, 10.2.2025. ELI: http://data.europa.eu/eli/C/2025/643/oj  
From  2026  these  figures  will  appear  in  the  control  account  that  is  established  in  Article  22  of  the 
Regulation (EU) 2024/1263. 

13 

 
 
which simulate a large range of possible temporary shocks to macroeconomic variables, there 
is a high likelihood that the debt ratio in 2029 will be higher than in 2024. 

Other factors need to be taken into account for an overall assessment of debt sustainability. 
On the one hand, risk-increasing factors relate to the context of higher interest rates given the 
elevated  level  of  public  debt.  On  the  other  hand,  risk-mitigating  factors  include  the 
lengthening  of  debt  maturity  in  recent  years,  relatively  stable  financing  sources  featuring  a 
well-diversified and large investor base, and the very large share of debt denominated in euro. 
In addition, the ‘closure clause’ introduced by the 2023 pension reform, if fully implemented 
in line with the RRF commitments of Spain would contribute to addressing emerging fiscal 
sustainability gaps related to public pension expenditure. 

The Council recommendation on 21 January 2025 endorsing the medium-term plan of Spain 
specifies  the  set  of  reforms  and  investments  underpinning  the  extension  of  the  adjustment 
period, together with a timeline for their implementation. They include existing and stepped-
up measures from the recovery and resilience plan, such as reforms in the area of taxation and 
fight against tax fraud, reforms to improve the quality of public expenditure, and investments 
in the areas of digital transformation, green transition and productivity, as well as additional 
reforms  and  investments  such  as  deployment  of  a  common  business  regulation  framework, 
the introduction of mandatory electronic invoice, and investments in human capital, physical 
capital. Taking into account the information provided by Spain in its Annual Progress Report, 
the  Commission  finds  that  the  implementation  of  the  set  of  reforms  and  investments 
underpinning an extension of the adjustment period that were due by the 30 April 2025 have 
been implemented with the exception of certain elements of Spain’s Recovery and Resilience 
Plan’s  measure  C28.R3  and  the  related  milestone  on  the  entry  into  force  of  tax  reforms 
derived from the expert group recommendations or other analyses by the Ministry of Finance. 

In addition, structural reforms and investments under the RRF will have a positive impact on 
GDP growth in the coming years. The implementation of reforms and investments included 
in  the  Recovery  and  Resilience  Plan  of  Spain  is  underway.  However,  timely  completion 
requires increased efforts. 

National budgetary framework.  The Spanish Fiscal Council (AIReF) has a broad mandate 
and has quickly established itself as a trusted independent institution. National fiscal rules in 
Spain include the budget balance rule, the debt rule and the national expenditure rule. With 
the deactivation of the General Escape Clause at the end of 2023 and the recent adoption of 
new  rules  at  EU  level,  Spain  is  currently  in  a  transition  phase  with  its  national  fiscal  rules 
again  being applied.    In  its national  Recovery and Resilience Plan, Spain  has committed to 
carry  out  spending  reviews  prepared  by  AIReF  and  to  integrate  them  into  the  annual 
budgetary process. 

Increase  in  government  investment  in  defence.  Based  on  COFOG  data  published  by 
Eurostat,  total  general  government  expenditure  on  defence  amounted  to  0.9%  of  GDP  in 
2023. Of this,  government  investment  in  defence represented 0.2% of GDP  in  2023, which 
was 0.2 percentage point lower than in 2022. 

Other  factors  put  forward  by  the  Member  State.  On  2  May  2025,  Spain  provided 
additional relevant factors not mentioned above. Fiscal developments in 2024 were impacted 
by  the  devastating  floods  that  took  place  in  October  2024.  The  DANA23  floods  constituted 
the  worst  natural  disaster  in  Spain’s  recent  history  and  has  taken  a  heavy  toll  in  terms  of 

23  

DANA stands for depresión aislada en niveles altos, or isolated depression at high levels. 

14 

 
 
material and human losses. According to Spain, in the absence of flood-related expenditure24 
the headline deficit would have fallen to 2.8% of GDP in 2024, in compliance with the Treaty 
reference  value  and  0.2  percentage  points  below  the  projection  in  the  medium-term  fiscal-
structural plan submitted only two weeks before the floods. Given the unusual severity of the 
October DANA storm, the Commission considers that it is a mitigating relevant factor when 
assessing the excess over the deficit reference value in 2024. 

LATVIA 

Medium-term  macroeconomic  position.  Real  GDP  increased  by  2.9%  in  2023,  before 
contracting by 0.4% in 2024 mainly driven by the adverse geopolitical context and increasing 
uncertainty  weighing  on  consumption  and  especially  investment.  Output  is  projected  to 
slightly increase in 2025, by 0.5%, and then to increase in 2026 by 2.0%. The growth in 2025 
is mainly driven by private and public consumption. Investments are set to decrease due to a 
strong negative carry-over and persistent  uncertainties while exports are  forecast to  recover 
only gradually affected by the adverse impact of US tariffs.  

Medium-term budgetary position, including investment. The general  government  deficit 
decreased  from  2.4%  of  GDP  in  2023  to  1.8%  in  2024.  According  to  the  Commission’s 
calculations,  these  developments  correspond  to  a  net  expenditure  growth  rate  of  4.5%  in 
2024. Government investment stood at 5.6% of GDP in 2023, and increased slightly to 5.7% 
in  2024.  Based  on  the  Commission’s  estimates,  the  fiscal  stance,  which  includes  both 
nationally  and  EU  financed  expenditure,  was  neutral  in  2024.  The  growth  in  nationally 
financed  primary  current  expenditure  (net  of  discretionary  revenue  measures)  in  2024 
provided a broadly neutral contribution to the fiscal stance. 

The Commission Spring 2025 Forecast projects a general government deficit of 3.1% of GDP 
in 2025 and 3.1% in 2026. Government investment is projected to increase to 7.0% of GDP 
in  2025,  before  marginally  increasing  further  to  7.2%  in  2026,  being  larger  than  the 
government deficit in the same years. Based on the Commission’s estimates, the fiscal stance 
is projected to be expansionary, by 1.1% of GDP, in 2025. The growth in nationally financed 
primary current expenditure in 2025 is projected to provide a broadly neutral contribution to 
the fiscal stance. 

According to the Commission Spring 2025 Forecast, net expenditure in Latvia is projected to 
grow by 5.7% in 2025 and 10.4% cumulatively in 2024 and 2025. Based on the Commission 
2025 Spring Forecast, the net expenditure growth of Latvia in 2025 is projected to be below 
the maximum growth rate recommended by the Council on 21 January 202525, both annually 
and when considering 2024 and 2025 together. 

Debt challenges and medium-term debt position. The government debt slightly increased 
from  44.4%  the  end  of  2022  to  44.6%  of  GDP  at  the  end  of  2023.  In  2024  it  increased  to 
46.8%  of  GDP.  The  debt-to-GDP  ratio  is  projected  to  rise  to  48.6%  of  GDP  at  the  end  of 
2025 and 49.3% at the end of 2026. 

24  

25 

With  a  fiscal  impact  of  0.4%  of  GDP  -  around  85%  of  the  total  fiscal  impact  stems  directly  from 
amounts paid out by the Consorcio de Compensación de Seguros, a public insurance fund that provides 
direct  and  automatic  compensation  for  damages  resulting  from  extraordinary  risks,  such  as  natural 
disasters. 
Council  Recommendation  of  21  January  2025  endorsing  the  medium-term  fiscal-structural  plan  of 
Latvia, OJ C/2025/652, 10.2.2025. ELI: http://data.europa.eu/eli/C/2025/652/oj 

15 

 
 
 
Overall, the debt  sustainability analysis indicates medium  risks over the  medium  term.  The 
debt  trajectory  is  only  moderately  sensitive  to  macroeconomic  shocks.  According  to  the 
stochastic  projections,  which  simulate  a  large  range  of  possible  temporary  shocks  to 
macroeconomic variables, there is a low likelihood that the debt ratio in 2029 will be higher 
than in 2024. 

Other factors need to be taken into account for an overall assessment of debt sustainability. 
On the one hand, risk-increasing factors include the relatively large share of public debt held 
by  non-residents,  the  share  of  non-performing  loans  in  the  Latvian  banking  sector  and  the 
negative  net  international  investment  position.  On  the  other  hand,  risk-mitigating  factors 
include the fact that debt is fully denominated in euro and the low share of short-term debt in 
total debt. 

In addition, structural reforms and investments under the RRF will have a positive impact on 
GDP growth in the coming years. The implementation of reforms and investments included 
in  the  Recovery  and  Resilience  Plan  of  Latvia  is  underway.  However,  timely  completion 
requires increased efforts. 

National  budgetary  framework.  The  national  fiscal  framework  of  Latvia  underwent  a 
comprehensive  reform  in  2013,  when  the  Fiscal  Discipline  Law  was  adopted,  with  the 
Latvian Fiscal Discipline Council (FDC) starting its operations in 2014. The FDC monitors 
compliance  with  Latvia’s  fiscal  rules,  including  the  structural  balance  rule  and  the 
expenditure rule. Furthermore, the FDC endorses the macroeconomic forecasts underpinning 
the budgetary process and communicates proactively on various aspects of fiscal policy and 
sustainability  of  public  finances.  The  FDC  is  a  well-established  independent  collegial 
institution actively participating in the domestic debate.  

Increase  in  government  investment  in  defence.  Based  on  COFOG  data  published  by 
Eurostat,  total  general  government  expenditure  on  defence  amounted  to  3.1%  of  GDP  in 
2023. Of this,  government  investment  in  defence represented 0.5% of GDP  in  2023, which 
was 0.3 percentage point higher than in 2022.  

According  to  the  information  provided  by  the  Latvian  authorities,  defence  investment  is 
projected to reach 1.0% of GDP in 2025, an increase by 0.2% of GDP compared to 2024. 

Other  factors  put  forward  by  the  Member  State.  On  30  April  2025,  Latvia  provided 
additional  relevant  factors  not  mentioned  above,  including  lower  than  previously  projected 
GDP  growth  in  2025,  which  would  adversely  affect  general  government  tax  revenue.  The 
letter  also  drew  attention  to  Latvia’s  request  to  activate  the  national  escape  clause  to 
accommodate increased defence expenditure (see section 2 above). 

16 

 
 
 
4.2.2. MEMBER STATES FOR WHICH RELEVANT FACTORS CANNOT BE TAKEN INTO 

ACCOUNT 

AUSTRIA  

Medium-term macroeconomic position. Real GDP contracted by 1.0% in 2023 and further 
by 1.2% in 2024, mainly driven by stagnant consumption and a downturn in industry, driven 
by cost pressures and declining investment. Output is projected to contract again, by 0.3%, in 
2025,  before  increasing  by  1.0%  in  2026.  The  decline  in  2025  is  mainly  driven  by  falling 
equipment investment and negative net exports.  

Medium-term budgetary position, including investment. The general  government  deficit 
increased  from  2.6%  of  GDP  in  2023  to  4.7%  in  2024.  According  to  the  Commission’s 
calculations,  these  developments  correspond  to  a  net  expenditure  growth  rate  of  8.7%  in 
2024. Government investment stood at 3.7 % of GDP in 2023 and increased to 3.9% in 2024. 
Based on the Commission’s estimates, the fiscal stance, which includes both nationally and 
EU  financed  expenditure,  was  expansionary,  by  2.3%  of  GDP,  in  2024.  The  growth  in 
nationally  financed  primary  current  expenditure  (net  of  discretionary  revenue  measures)  in 
2024 provided an expansionary contribution to the fiscal stance, amounting to 2.1% of GDP. 

The Commission Spring 2025 Forecast projects a general government deficit of 4.4% of GDP 
in 2025 and 4.2% in 2026. Government investment is projected to remain at 3.9% of GDP in 
2025 and to increase to 4.0% in 2026. Based on the Commission’s estimates, the fiscal stance 
is  projected  to  be  contractionary,  by  1.3%  of  GDP,  in  2025.  The  growth  in  nationally 
financed  primary  current  expenditure  in  2025  is  projected  to  provide  a  contractionary 
contribution to the fiscal stance, amounting to 0.9% of GDP. 

On  13  May  2025,  Austria  submitted  its  first  medium-term  fiscal-structural  plan,  in 
accordance  with  Regulation  (EU)  2024/1263.  The  plan  covers  the  period  2025-2029  and 
presents a fiscal adjustment spread over seven years. The Commission is currently assessing 
the plan and will adopt its recommendation for a Council Recommendation in due course. 

According to the Commission Spring 2025 Forecast, net expenditure in Austria is projected 
to  grow  by  2.0%  in  2025.  Based  on  the  Commission  Spring  2025  Forecast,  the  net 
expenditure  growth  of  Austria  in  2025  is  projected  to  be  below  the  maximum  growth  rate 
committed to by Austria in its plan. 

Debt challenges and medium-term debt position. The government debt slightly increased 
from 78.4% of GDP at the end of 2022 to 78.5% at the end of 2023. In 2024 the debt-to-GDP 
ratio increased to 81.8%, and is projected to increase further to 84.0% at the end of 2025 and 
85.8.% at the end of 2026. 

Overall,  the  debt  sustainability  analysis  indicates  high  risks  over  the  medium  term.  The 
baseline  debt  trajectory  is  sensitive  to  macroeconomic  shocks.  According  to  the  stochastic 
projections,  which  simulate  a  large  range  of  possible  temporary  shocks  to  macroeconomic 
variables, there is a high likelihood that the debt ratio in 2029 will be higher than in 2024.  

Other factors need to be taken into account for an overall assessment of debt sustainability. 
On the one hand, risk-increasing factors relate to the recent increase in interest rates and the 
fact  that  around  60%  of  the  debt  is  held  by  non-residents.  In  addition,  some  contingent 
liability risks stem from the private sector, including via the possible materialisation of state 
guarantees.  On  the  other  hand,  risk-mitigating  factors  include  the  lengthening  of  debt 
maturity in recent years and the large share of debt denominated in euro. 

17 

 
In addition, structural reforms and investments under the RRF will have a positive impact on 
GDP growth in the coming years. The implementation of reforms and investments included 
in the Recovery and Resilience Plan of Austria is underway.  

National  budgetary  framework.    Austria  is  one  of  five  Member  States  with  two 
independent  fiscal  institutions,  WIFO  and  the  Fiskalrat.  The  former  is  a  well-established 
research  institution  that  provides  the  macroeconomic  forecast  underlying  the  government’s 
budgetary  planning.  The  latter  primarily  performs  both  ex  ante  and  ex  post  monitoring  of 
compliance  with  national  and  EU  fiscal  rules;  this  monitoring  is  reported  twice  a  year.  Its 
assessment  of  the  budgetary  forecast  takes  place  only  after  the  adoption  of  the  budget  by 
parliament.  Moreover,  the  Fiskalrat  publishes  recommendations  on  fiscal  policy  and 
medium-term budget orientation. 

Increase  in  government  investment  in  defence.  Based  on  COFOG  data  published  by 
Eurostat,  total  general  government  expenditure  on  defence  amounted  to  0.6%  of  GDP  in 
2023.  Of  this,  government  investment  in  defence  represented  0.1%  of  GDP,  remaining 
unchanged compared to 2022.  

According to the information provided by the Austrian authorities, total defence expenditure 
is assumed to have increased by 0.07% of GDP in 2024 compared to 2021. 

Other  factors  put  forward  by  the  Member  State.  On  30  April  2025,  Austria  provided 
additional relevant  factors not  mentioned above, namely the impact of substantial  floods in 
autumn 2024, which put a burden on public finances. In addition to this, according to Austria, 
the  disinflationary  process  developed  quicker  than  expected,  putting  a  drag  on  the  tax  base 
compared  to  the  latest  budget  presented  in  October  2023.  The  2025-2026  budget  was 
presented on 13 May and will be adopted by Parliament towards the end of June.26 It contains 
a consolidation package of EUR 6.4 billion (1.3% of GDP) in 2025 and up to EUR 8.7 billion 
(1.7% of GDP) in 2026.  

FINLAND  

Medium-term macroeconomic position. Real GDP contracted by 0.9% in 2023. Real GDP 
further slightly contracted by 0.1% in 2024 mainly driven by a sizeable drop in investment, 
and  a  small  decline  in  consumption,  while  government  spending  and  net  trade  supported 
growth. Output is projected to increase in 2025 by 1.0% and in 2026 by 1.3%. The growth in 
2025 is mainly driven by the recovery in consumption and investment due to rising household 
incomes thanks to increasing wages and improving financing conditions.  

Medium-term  budgetary  position,  including  investment.  Finland’s  general  government 
deficit increased from 3.0% of GDP in 2023 to 4.4% in 2024. According to the Commission’s 
calculations,  these  developments  correspond  to  a  net  expenditure  growth  rate  of  3.1%  in 
2024. Government investment stood at 4.1 % of GDP in 2023 and increased to 4.4% in 2024. 
Based on the Commission’s estimates, the fiscal stance, which includes both nationally and 
EU  financed  expenditure,  was  expansionary,  by  0.6%  of  GDP,  in  2024.  The  growth  in 
nationally  financed  primary  current  expenditure  (net  of  discretionary  revenue  measures)  in 
2024 provided an expansionary contribution to the fiscal stance, amounting to 0.3% of GDP. 

26  

The Draft Budgetary plan of Austria was submitted to the Commission and the Eurogroup on 13 May 
2025. The Commission Opinion on the Draft Budgetary Plan is expected to be published in the course 
of June, together with the assessment of the medium-term plan (also submitted on 13 May 2025). 

18 

 
 
 
The Commission Spring 2025 Forecast projects a general government deficit of 3.7% of GDP 
in 2025 and 3.4% in 2026. Government investment is projected to increase to 4.9% of GDP 
in 2025, before marginally declining to 4.8% in 2026. Based on the Commission’s estimates, 
the fiscal stance is projected to be contractionary, by 0.6% of GDP, in 2025. The growth in 
nationally  financed  primary  current  expenditure  in  2025  is  projected  to  provide  a 
contractionary contribution to the fiscal stance, amounting to 1.1% of GDP. 

According to the Commission Spring 2025 Forecast, net expenditure in Finland is projected 
to  grow  by  1.3%  in  2025  and  4.4%  cumulatively  in  2024  and  2025.  Based  on  the 
Commission  Spring  2025  Forecast,  the  net  expenditure  growth  of  Finland  in  2025  is 
projected to be below the maximum growth rate recommended by the Council on 21 January 
202527, both annually and when considering 2024 and 2025 together. 

Debt challenges and medium-term debt position. The government debt slightly increased 
from 74.0% at the end of 2022 to 77.5% of GDP at the end of 2023. In 2024 the debt-to-GDP 
ratio increased to 82.1% of GDP, and is projected to increase further to 85.6% of GDP at the 
end of 2025 and to 87.5% at the end of 2026. 

Overall,  the  debt  sustainability  analysis  indicates  high  risks  over  the  medium  term.  The 
baseline  debt  trajectory  is  sensitive  to  macroeconomic  shocks.  According  to  the  stochastic 
projections,  which  simulate  a  large  range  of  possible  temporary  shocks  to  macroeconomic 
variables, there is a high likelihood that the debt ratio in 2029 will be higher than in 2024.  

Other factors need to be taken into account for an overall assessment of debt sustainability. 
On  the  one  hand,  government  guarantees,  and  the  related  implicit  liabilities  for  the  public 
sector, are the largest in the EU. On the other hand, risk-mitigating factors include relatively 
stable  financing  sources  (with  a  diversified  and  large  investor  base)  and  the  currency 
denomination of debt. 

The  Council  recommendation  on  21  January  2025  endorsing  the  medium-term  plan  of 
Finland  specifies  the  set  of  reforms  and  investments  underpinning  the  extension  of  the 
adjustment  period,  together  with  a  timeline  for  their  implementation. They  include  existing 
and stepped-up measures from the Recovery and Resilience Plan such as the introduction of 
the Nordic model of employment services, energy infrastructure investments, and introducing 
digital innovation in social and healthcare, as well as additional reforms and investments such 
as  the  reform  introducing  the  general  social  security  model  and  the  reform  of  social 
assistance,  related  to  the  green  transition,  innovation,  labour  market,  healthcare  and  social 
care. Taking into account the information provided by Finland in its Annual Progress Report, 
the  Commission  finds  that  all  the  reforms  and  investments  underpinning  an  extension  that 
were due by 30 April 2025 have been implemented. 

In addition, structural reforms and investments under the RRF will have a positive impact on 
GDP growth in the coming years. The implementation of reforms and investments included 
in the Recovery and Resilience Plan of Finland is underway.  

National budgetary framework.  The cornerstone of the Finnish fiscal framework is a set of 
binding  expenditure  ceilings  covering  the  central  government.  At  the  beginning  of  the 
parliamentary term, the  government  decides on the spending  limits  and the rules governing 
the procedure for the entire 4-year term, complemented by a nominal deficit rule. In addition, 
Finland  has  a  balanced-budget  rule  in  structural  terms  as  well  as  a  debt  rule  covering  the 
general  government,  which also  apply  over the length of the government  term  (four years). 

27  

Council  Recommendation  of  21  January  2025  endorsing  the  medium-term  fiscal-structural  plan  of 
Finland, OJ C/2025/656, 10.2.2025. ELI: http://data.europa.eu/eli/C/2025/656/oj  

19 

 
 
Finally, the budget balance rules for local governments and the social security sector are set 
by  ordinary  law.  Finland  builds  its  medium-term  budgetary  strategy  outlining  the 
government’s fiscal objectives and medium-term priorities according to these rules, following 
a rolling planning window.  

Increase  in  government  investment  in  defence.  Based  on  COFOG  data  published  by 
Eurostat,  total  general  government  expenditure  on  defence  amounted  to  1.4%  of  GDP  in 
2023. Of this,  government  investment  in  defence represented 0.1% of GDP  in  2023, which 
was 0.1 percentage point lower than in 2022.  

According to  the information provided by Finland, total  defence expenditure is  expected to 
increase by 0.4% of GDP in 2024, compared to 2021. Additionally, total defence expenditure 
is  assumed  to  increase  by  0.9%  of  GDP  in  2025  compared  to  2021,  while  defence 
investments are forecast to increase by 0.6 % of GDP in 2025, compared to 2021. 

Other  factors  put  forward  by  the  Member  State.  On  6  May  2025,  Finland  provided 
additional relevant factors not mentioned above, namely the consolidation efforts decided in 
2024 amounting  to  1%  of GDP and taking effect  in 2025. The letter also drew  attention to 
Finland’s  request  on  30  April  2025  to  activate  the  national  escape  clause  to  accommodate 
increased defence expenditure. The Commission has assessed the request and has adopted a 
Recommendation  for  a  Council  Recommendation  allowing  Finland  to  deviate  from,  and 
exceed, the recommended net expenditure path28 under the period 2025-2028. 

5.  CONCLUSIONS 

The  government  deficit  exceeded  the  reference  value  of  3%  of  GDP  in  2024  in  Spain, 
Austria and Finland. In Spain, the government deficit was above but close to the reference 
value in 2024. In Austria and Finland, the government deficits were above and not close to 
the reference value in 2024.  

Latvia  had  a  government  deficit  not  exceeding  the  reference  value  in  2024,  but  reported  a 
planned deficit above but close to 3% of GDP in 2025; the Commission’s forecast likewise 
projects a deficit(s) above but close to 3% of GDP in 2025. 

According  to  the  Commission’s  forecast,  the  government  deficits  in  Latvia,  Austria  and 
Finland are projected to exceed 3% of GDP in 2025 and 2026 (though in the case of Latvia 
only  marginally). Therefore, the deficits in  excess of the  reference value  are  assessed to be 
not  temporary  for  Latvia,  Austria  and  Finland.  Differently,  the  government  deficits  in 
Spain are projected the Commission’s forecast not to exceed the reference value in 2025 and 
2026, and therefore the deficit in excess of the reference value is assessed as temporary. 

The  excess  over  the  reference  value  is  assessed  as  exceptional  in  the  case  of  Austria, 
Finland, and Latvia, and not exceptional in the case of Spain.  

In sum, the deficit criterion is not fulfilled by Spain, Latvia, Austria, and Finland before the 
consideration of the relevant factors.  

Relevant  factors  can  be  taken  into  account  in  the  steps  leading  to  the  decision  on  the 
existence  of  an  excessive  deficit  for  Member  States  with  government  debt  below  60%  of 
GDP (Latvia) and for Member States with government debt above 60% of GDP if the deficit 

28  

Commission Recommendation for a Council Recommendation  allowing Finland to deviate from, and 
exceed, the recommended net expenditure path, 04.06.2025, COM(2025) 606 final. 

20 

 
 
 
remains  close  to  the  reference  value  and  the  excess  over  the  reference  value  is  temporary 
(Spain). These  factors  can  affect  the  assessment  of  compliance  with  the deficit  criterion  as 
mitigating or aggravating factors, whereby substantial debt challenges are regarded as a key 
aggravating factor. The relevant factors examined in this report are assessed as, on balance, 
mitigating for Latvia and a mixed picture for Spain. 

Overall,  for  Spain  and  Latvia,  taking  into  account  all  relevant  factors  as  appropriate, 
the deficit criterion is assessed as being fulfilled. 

Finland has requested the activation of the national escape clause on 30 April 2025, and the 
Commission  is  recommending  to  the  Council  in  line  with  such  a  request.  Moreover,  since 
2021, defence expenditure in Finland has increased from 1.2% of GDP to 1.5% in 2024, and 
is  projected  to  be  2.1%  and  2.0%  of  GDP  in  2025  and  2026,  respectively,  based  on  the 
Commission's  forecasts.  Without  this  increase  in  defence  expenditure,  the  deficits  in  2025 
and 2026 are projected by the Commission to be below the reference value without additional 
policy  measures.  Not  to  initiate  an  excessive  deficit  procedure  for  Finland  in  view  of  the 
excess over 3% of GDP in 2025 and 2026 being due to additional defence expenditure is in 
accordance  with Article  2(5)  of  Regulation  (EU)  No  1467/97,  which  establishes  that  if  the 
national escape clause is activated, the Commission and the Council may decide not to reach 
a conclusion regarding the existence of an excessive deficit. 

Austria has so far not requested the activation of the national escape clause and its defence 
expenditure since 2021 has been stable and relatively low. 

In the light of this assessment the Commission is of the view that there is no case to open 
an excessive deficit procedure for Finland. 

In  the  light  of  this  report,  and  after  considering  the  opinion  of  the  Economic  and 
Financial  Committee  as  established  under  Article  126(4)  TFEU,  the  Commission  will 
consider  proposing  to  open  an  excessive  deficit  procedure  for Austria  by  proposing  to 
the  Council  to  adopt  a  Decision  under  Article  126(6)  establishing  the  existence  of  an 
excessive deficit. 

_________________ 

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