Excessive deficit procedure
The excessive deficit procedure is governed by Article 126 of the Treaty on the Functioning of the European Union, under which the Member States are obliged to avoid excessive deficits in national budgets.
The Commission assesses the situation and the Council decides whether or not an excessive deficit exists. The Commission, which draws up a report in this connection, is required to take into account all the relevant factors (cyclical conditions, reforms, etc.) having a bearing on an excessive deficit.
When the Council decides that an excessive deficit exists in a Member State, it first of all makes recommendations to the State concerned, with a view to rectifying the situation within a given period. If the Member State fails to comply with these recommendations, the Council may instruct it to take appropriate measures for reducing the deficit. If necessary, the Council has the option of imposing penalties or fines and of inviting the European Investment Bank (EIB) to reconsider its lending policy towards the Member State concerned.
The reference value for the existence of an excessive deficit is 3% of gross domestic product (GDP). A Council Regulation adopted in 1997 is designed to speed up and clarify the implementation of the excessive deficit procedure.