The implications and implications of the EU's deficit-reduction initiatives

On November 26, 2024, the European Commission released the 2024 European Autumn Package, which aroused wide attention, including the initiation of excessive deficit procedures for eight member states such as Belgium, France and Italy, which was like a stone thrown into the calm lake, stirring up layers of ripples. There are complex economic circumstances, policy considerations and far-reaching implications.

In recent years, the global economy has faced many uncertainties, and Europe is naturally not immune. The impact of the novel coronavirus epidemic has not been completely dissipated, and the Russia-Ukraine conflict has followed, and a series of problems such as energy price fluctuations and supply chain disruptions have hit the economies of European countries to varying degrees. In such an environment, some member states have taken measures such as increasing fiscal expenditure in order to stimulate economic recovery and ensure people's livelihood. Although this has helped to maintain social stability and stimulate economic growth in a certain stage, it has led to rising fiscal deficits in the long run.

The Commission initiated this excessive deficit procedure primarily to safeguard fiscal stability in the euro area as a whole. The stability of the euro as a common currency depends on the relative fiscal health of its member states. When a number of member states run excessive deficits, it is like the foundation of the edifice has been loosened, potentially shaking the credibility and stability of the entire euro system. Once market confidence in the eurozone declines, investors may withdraw their funds, causing financial market turmoil, which will affect the entire European and global economic landscape. For example, in the previous Greek debt crisis, the chain reaction caused by its high deficit, so that the eurozone faced a huge test, this time the EU obviously wants to prevent a similar crisis in advance.

For the eight member countries, including Belgium, France and Italy, which are required to reduce their deficits, this is both a constraint and an opportunity to promote internal economic restructuring. Taking France as an example, it has a huge public service system, its fiscal expenditure has been high, and it has a large capital demand in many aspects such as social security and scientific research investment. To reduce the deficit this time, France needs to re-examine the rationality of various expenditures and think about how to improve the efficiency of the use of financial funds while ensuring the welfare of the people, such as appropriately letting go of some areas that can be better operated through the market mechanism, or optimizing the tax structure and increasing the sources of fiscal revenue. Italy, too, has long struggled with high debt, and the task of reducing its deficit has prompted it to accelerate reforms in areas such as state-owned enterprises to revitalize assets and boost the economy's internal momentum.

However, this initiative is bound to face many challenges in the process of implementation. From the domestic perspective, deficit reduction often means reducing public spending, which may touch the vital interests of the people, such as reducing welfare programs and slowing down the speed of infrastructure construction, which is easy to trigger public dissatisfaction and social conflicts. Politically, too, governments will need to weigh how to maintain their own popularity while complying with the EU's demands. From the international level, the economic structure and development stage of these eight member states are different, whether the unified deficit reduction requirements are compatible with their actual conditions is worth discussing, and if done too quickly, it may cause the pace of economic recovery to be disrupted, making the already fragile economy worse.

Moreover, the EU needs to be careful in its monitoring of the implementation of this procedure. On the one hand, it is necessary to ensure that member states take concrete actions to reduce deficits and safeguard the overall stability of the eurozone. On the other hand, excessive pressure should not affect the initiative and flexibility of member states to independently develop their economies.

In short, the EU's initiation of the excessive deficit procedure is an important decision in a complex situation with far-reaching implications. It is related to whether the European economy can achieve steady and sustainable development in the future, related to the long-term stability of the eurozone, and also tests how to strike a balance between the implementation of rules and independent development between the EU and its member states. The subsequent development deserves continuous attention and in-depth analysis.