{"id":32440,"date":"2026-03-02T13:52:41","date_gmt":"2026-03-02T12:52:41","guid":{"rendered":"https:\/\/www.rrz.sk\/nespravne-nastavenie-europskych-pravidiel-pre-slovensko-si-vyzaduje-ambicioznejsi-domaci-pristup-k-ozdraveniu-verejnych-financii\/"},"modified":"2026-03-02T14:22:13","modified_gmt":"2026-03-02T13:22:13","slug":"failed-implementation-of-european-rules-in-slovakia-should-require-a-more-ambiotious-domestic-approach-to-mend-public-finances","status":"publish","type":"post","link":"https:\/\/www.rrz.sk\/en\/failed-implementation-of-european-rules-in-slovakia-should-require-a-more-ambiotious-domestic-approach-to-mend-public-finances\/","title":{"rendered":"Failed Implementation of European Rules in Slovakia Should Require a More Ambitious Domestic Approach to Mend Public Finances"},"content":{"rendered":"

The reformed European fiscal rules were intended to help countries reduce their deficits and debt in a sustainable way. They were adopted in 2024[1]<\/a>, in the period after the Covid-19 pandemic and after the Russian invasion in Ukraine, when the public finances of many countries were under increased pressure. The goal of the rules remains to sustainably reduce deficits below 3% of GDP and debts below 60% of GDP.<\/strong> Since the direct targeting of deficits under the previous rules was not resilient in the face of unexpected crises, the reformed rules introduced a new indicator that EU countries public finances were to follow. This indicator is the maximum net expenditure growth, which in the Slovak case is monitored over a four-year trajectory[2]<\/a>.<\/p>\n

On paper, this is a clear framework; however, at least in the Slovak case, it was set up very loosely from the start, as pointed out<\/a> by the Council for Budget Responsibility (RRZ) at the time. Progress up to date has confirmed that the net expenditure growth rule is not constructed <\/strong>to achieve sound fiscal consolidation for Slovakia \u2014 it will ensure neither debt below 60% nor a deficit below 3%<\/strong> (Charts 1 and 2). Therefore, to fix public finances and halt the unsustainable rise in debt, Slovakia needs its own strategy, since the EU rules \u2013 as currently set \u2013 are not sufficient for Slovakia.<\/strong><\/p>\n

\"G1_G2_GG_Balance_Debt_under_the_EU_rudles_and_alternative_scenarios\"<\/a><\/p>\n

Slovakia Formally Complies with the New Rules Even with High Deficits and Rapid Debt Growth<\/span><\/h3>\n

The Slovak government accepted the rules by approving the National Medium-Term Fiscal-Structural Plan for 2025\u20132028 in October 2024, which was endorsed by the Council of the EU in January 2025. The first evaluation of the plan\u2019s implementation by the European Commission will come in spring 2026.<\/p>\n

According to current RRZ estimates, Slovakia may comply with the European net expenditure growth rule even if the deficit reaches as high as 6.0% of GDP in 2027<\/strong>. RRZ estimates that without any additional consolidation measures, the deficit could reach approximately 5.3% of GDP in 2027[3]<\/a>.<\/p>\n

In other words, the European fiscal rules do not require Slovakia to continue with consolidation in 2027<\/strong>, even though the deficit remains very high.<\/p>\n

With such high deficits, debt growth would not stop \u2014 on the contrary, by 2028 it would exceed 70% of GDP and continue rising beyond the horizon of the current plan. This directly contradicts the main goal of the European rules, which is to stabilise debt below 60% of GDP[4]<\/a>, and it also contradicts the government\u2019s objective of stabilising debt<\/strong>, what it committed to in its government manifesto.<\/p>\n

It is therefore clear that if the government wants to meet its own debt stabilisation objective, it will have to go significantly beyond the loosely set standard required by Brussels<\/strong>. This calls for additional consolidation measures, a better-designed national fiscal framework, and more realistic economic assumptions.<\/p>\n

Where Are the Failures? Three Main Reasons Why European Rules Are Not Sufficient<\/span><\/h3>\n

Three key factors lay behind this development in Slovakia with their effects accumulating over time.<\/p>\n

1. Unrealistic Expectations of Revenue Growth<\/strong><\/p>\n

The most important flaw was the European Commission\u2019s (EC) assumption that general government revenues would grow at the pace of potential GDP growth in the medium term. This does not hold factually \u2014 especially excise taxes and non-tax revenues are not fully elastic to GDP, meaning their share of GDP gradually declines[5]<\/a>. For example, in 2024 the share of revenues to GDP declined by 0.8 p.p., and according to available estimates, this trend was expected to continue. This overly optimistic assumption therefore assumed a faster decline in the deficit.\u00a0RRZ pointed out<\/a> the mismatch between the assumptions and reality already in October 2024, and the same problem was also acknowledged by the Ministry of Finance of the Slovak Republic (MF SR) in the National Medium-Term Fiscal-Structural Plan<\/strong>. Despite this, these risks were not reflected in a stricter setting of the net expenditure growth path, since the MF SR did not request the EC to incorporate more realistic assumptions into the estimate, and the EC itself could not change its assumptions on its own[6]<\/a>. In practice, this shows that relying on voluntary tightening of the fiscal framework at the national level is not being fulfilled in the Slovak case[7]<\/a>.<\/p>\n

2. No Correction of the Limit When Macroeconomic Assumptions Are Not Met<\/strong><\/p>\n

The European Commission set the maximum net expenditure growth for 2024 at 6.2%. This growth was supposed to lead to an improvement in the structural balance of 0.7% of GDP. However, the calculation assumed price growth (measured by the GDP deflator) of 5.7%. Eventually, prices rose only by 3.8%.<\/p>\n

Due to the lower-than-expected price growth, actual nominal expenditures grew slower than the rule allowed, but the rule did not reflect this fact in any way<\/strong>. Already in the first year of applying the new rules, this created space for a looser fiscal policy in the future.<\/p>\n

The result was a fiscal plan that was inadequate to meet the objectives of the Stability and Growth Pact already at the moment of its approval.<\/p>\n

3. Additional Loosening of the Rules Through the Escape Clause for Defence Expenditures<\/strong><\/p>\n

The third factor is the activation of the national escape clause in 2025. The purpose of this exemption is to respond to deteriorating international security. However, defence expenditures often involve a significant lag between the decision and actual implementation[8]<\/a>. The rule therefore does not only create room for new decisions but also allows countries like Slovakia \u2014 which currently has significantly higher defence spending due to decisions made in previous years \u2014 to obtain an additional relief from consolidation[9]<\/a>. As a result of the defence clause, given the expected defence spending, the rule is further loosened by on average 0.6% of GDP in 2025 to 2028.<\/p>\n

Combined with the already overly loose baseline rule in Slovakia\u2019s case<\/strong>, this represents another significant relaxation of the fiscal framework. In practice, this means that cumulative compliance with the rule may be adherent \u201con paper\u201d even when the country\u2019s fiscal position does not actually improve.<\/p>\n

European Rules Are Not Sufficient \u2014 Responsibility Remains at Home, at the National Level<\/span><\/h3>\n

The government should reconsider the way European fiscal rules are applied at the national level so that they:<\/p>\n