European Commission issues recommendations to rectify Finland’s excessive deficit

European Commission issues recommendations to rectify Finland's excessive deficit

The Council of the European Union will adopt the recommendations for corrective measures in January when deciding to open an excessive deficit procedure.

"Finland will be subject to closer monitoring by the EU. We will continue our ongoing efforts to adjust public finances and will report the measures we take to the EU," said Minister of Finance Riikka Purra.

Pace of adjustments to be guided by corrective net expenditure path

On Friday 12 December, the European Commission issued a proposal for a Council decision on the existence of an excessive deficit and for recommendations to rectify it. The recommendations include a corrective net expenditure path, which will guide the adjustment of Finland's public finances in 2026-2028.

Finland's net expenditure would be allowed to increase no more than 1.3 per cent in 2026, 1.5 per cent in 2027 and 1.8 per cent in 2028. This pace of adjustment is based on the minimum adjustments laid down by EU legislation. Under the minimum adjustments, Finland's structural primary balance would be expected to improve by at least 0.5 percentage points in relation to gross domestic product in 2026 and 2027. From 2028 onwards, the focus will shift to the structural balance, which would also be expected to improve by 0.5 percentage points annually in relation to gross domestic product.

On 25 November, the Commission estimated that Finland's net expenditure would increase 1.8 per cent in 2026, which would lead to a deviation of 0.3 percentage points from the corrective net expenditure path in relation to gross domestic product. The estimate is included in the review of Finland's Draft Budgetary Plan.

According to the Commission's Autumn Economic Forecast, the structural primary balance is set to improve by 0.4 percentage points in 2026 and to deteriorate by 0.1 percentage points in 2027.

The deadline set by the Commission's recommendations is the end of 2028, by which time Finland's deficit should be less than 3 per cent of GDP.

Assessment accounts for escape clause for defence

When assessing compliance with the corrective net expenditure path, the Commission will account for the escape clause activated by the EU for Finland due to growing defence spending. In practice, the escape clause will make it easier to comply with the corrective net expenditure path.

"We are safeguarding the welfare society"

The Government has made major adjustments to public finances, but the weak economic situation is making it more difficult to narrow the deficit. Finland's public deficit is widening due to defence, healthcare, social welfare and debt servicing expenditure.

"This Government is doing its part, and these efforts must continue. I hope it is clear to everyone that there will also be a great deal of work for the next Government to do. We are not doing this for the EU, but for Finland's future. We have to maintain our ability to safeguard the welfare society and other important parts of society in the future," Minister Purra said.

Next steps

The EU's Economic and Financial Affairs Council will decide to open an excessive deficit procedure and adopt recommendations to rectify the situation on 20 January.

The recommendations will require Finland to submit its first report on the corrective measures it has taken in April, and then Finland will have to submit regular reports every six months.

The Ministry of Finance will publish its economic forecast on 18 December and an updated estimate of the adjustments that will be necessary in the next parliamentary term on Friday 19 December.

Inquiries:
Marketta Henriksson, Director, Head of the Secretariat for EU and International Affairs, tel. +358 295 530 441, marketta.henriksson(at)gov.fi
Antti Kekäläinen, Senior Ministerial Adviser, tel. +358 295 530 386, antti.kekalainen(at)gov.fi
Jussi Lindgren, Economic Policy Adviser to the Minister of Finance, tel. +358 295 530 514, jussi.lindgren(at)gov.fi