Greece Polices Deficits, Germany Gets Exemption

Greece needed three international bailouts. It now chairs the body that monitors eurozone spending. Kyriakos Pierrakakis, Greece's finance minister, was elected Eurogroup president in December 2025, the first from a former crisis country. He now leads meetings where France, Austria and Finland explain how they intend to bring deficits back under control.

For Malta, in the euro since 2008, this is the machinery behind a shared currency: governments keep their own budgets, but they answer to rules agreed by all. Greece posted a +1.7% of GDP budget surplus in 2025, while its debt fell eight percentage points to 146.1% of GDP (Eurostat). Germany ran a -3.7% deficit, according to the Commission's Spring 2026 forecast. Finland posted -3.4% in 2025 (Statistics Finland), and the Commission projects that will widen to -4.5% this year.

Both Germany and Finland are above the Maastricht Treaty's 3% deficit ceiling, the limit EU countries set in 1992 as the price of sharing a currency. Across the bloc, thirteen member states now exceed it, and nine face the EU's formal correction process, known as the excessive deficit procedure.

Germany's exemption, Finland's squeeze

Germany's deficit is larger than Finland's. Germany still avoided formal proceedings. Finland was placed under them in January 2026.

The difference lies in a carve-out called the National Escape Clause. It allows countries to subtract up to 1.5 percentage points of GDP in defence spending from their deficit calculations. Fifteen countries activated it. Once Germany's defence bill is stripped out, its adjusted deficit falls to roughly 2.9%, just below the ceiling.

Finland activated the same clause, but the numbers do not work in its favour. Its deficit is driven by welfare costs linked to an ageing population and growth of just 0.2% in 2025, rather than mainly by defence. The Bundesbank warns that even Germany's adjusted deficit will exceed 3% in 2026 and 2027, heading towards 5%. The exemption gives Berlin time. It does not solve the budget problem.

Cutting benefits to pay for guns

Finland's defence spending is heading towards €14 to €15 billion annually by 2029, roughly double today's level. To make space, the government has cut unemployment benefits, housing allowances and vocational education (SAK). VAT rose to 25.5%. Long-term homelessness jumped 29% last year, the first increase in a decade.

Commissioner Dombrovskis visited Helsinki and said Finland was taking "effective action" (Finnish Ministry of Finance). In EU fiscal law, that phrase has a narrow meaning: the government is following the spending path Brussels prescribed. It does not mean the deficit target has been reached.

ETLA, Finland's independent economic research institute, says the country will miss every one of its own fiscal goals: a 1% deficit by 2027, then balance by 2031. The OECD and the IMF read the trajectory in much the same way.

The bailout countries balance the books

Greece, Portugal, Ireland and Cyprus all ran surpluses in 2025 (Eurostat). These are the countries that went through bailouts, cuts and institutional humiliation in the 2010s. The restructuring forced on them left fiscal habits that now show up in the accounts. In June 2026, the Commission removed Greece from its high-risk watchlist for economic imbalances entirely.

The EU has never fined a country for running excessive deficits. The closest case was an €18.9 million penalty on Spain in 2015 for falsifying statistics, not for overspending. In 2003, France and Germany blocked sanctions against themselves at the Council. Finance ministers vote on each other's penalties. That flaw in the design remains.

Finland is cutting housing support and freezing benefits to stay on the prescribed path. Germany created a €500 billion off-budget infrastructure fund and received an exemption. Both countries are working within the rules. Only one is shrinking its safety net to get there.