In June 2024, the European Commission assessed that it was justified to open the excessive deficit procedure, among others, for Poland. In the EC’s assessment, the published report justifies the initiation of the excessive deficit procedure for seven countries: Belgium, France, Italy, Hungary, Malta, Poland, and Slovakia.
The excessive deficit procedure may be launched at the request of the EC when in a given EU country the public finance sector deficit exceeds 3% of GDP or public debt is higher than 60% of GDP. In Poland, at the end of 2023, public debt was not excessive, and amounted to 49.6%, but the public finance sector deficit amounted to 5.1% and increased significantly from 2022 (3.5%) and 2021 (1.8%), which contributed to the negative assessment of the Commission.
The state’s spending plans for 2024 were also received negatively, assuming a deficit of 5.1% of GDP. Public debt is to grow to 54.1% of GDP
Being included in the procedure means that each of these countries will have to present a plan of corrective actions that it intends to take to reduce the deficit. If a member state does not implement the Council’s recommendations, it may call on it to adopt “measures aimed at reducing the deficit as the Council considers necessary to remedy the situation” within a specified period. This may mean, for example, budget cuts.
Poland is in a specific situation. It is a direct neighbor of Ukraine, where a war is ongoing. As reported by the Stockholm Peace Research Institute (SIPRI), Poland’s military spending was 75% higher in 2023 than a year earlier, which was by far the fastest annual increase in the whole of Europe. Large expenditures on weapons purchases have also been planned for the coming years, significantly exceeding 3% of GDP, which is currently the highest percentage in the EU.
The ruling politicians emphasize that the EU procedure will not change the plans for defense spending, which are and were a priority for both the current and previous governments. The Ministry of Finance is already preparing steps to reduce other expenses. Plans for reducing the deficit have already been included in the Multiannual Financial Plan. However, in the perspective of 2025, it is only a drop to 4.1% of GDP. We will soon find out whether such a result will satisfy the European Commission.
Another economic effect is Poland’s further distancing itself from joining the Eurozone, where the deficit level of 3% of GDP is one of the boundary conditions for adopting the common currency.
The political aspect cannot be omitted from this discussion either. In 2023, the liberal-conservative opposition took power in Poland from the populist Law and Justice party. The election campaign saw further social promises, such as a widow’s pension, an increase in direct support for children from PLN 500 per month to PLN 800 per month, and a reduction in health insurance contributions. The Polish government will therefore face a major dilemma of how to deliver on its promises and not lose power while maintaining the required discipline of public finances.
