Austria faces EU's first punishment under far-right leadership

Austria is on the verge of forming its first far-right-led government since World War II, and the country's immediate clash with the European Union will centre not on Russia or migration, but on its public spending practices.

Once admired for its fiscal discipline, Austria now faces the risk of punishment from the European Commission over excessive spending projections for 2024 to 2026, Caliber.Az reports via Politico.

To avoid being placed under the EU's special regime for over-spending nations, Austria must submit a credible plan to reduce its public spending to the European Commission by January 21. The outcome of negotiations between the far-right Freedom Party (FPÖ), led by Herbert Kickl, and the conservative People’s Party (ÖVP) will determine if Austria can meet this deadline.

Should talks collapse, Austria risks missing the crucial deadline, potentially ending up alongside highly indebted countries like Italy and France, facing EU sanctions.

The EU had initially delayed its punitive measures in November to give Austria additional time to address its fiscal issues. Under the arrangement, Austria is expected to propose measures that would reduce its public deficit to below 3 per cent of GDP by the upcoming ECOFIN meeting on January 21.

Time is running out, however. A European Commission spokesperson emphasized that Austria's plan must be "credibly announced and sufficiently specified" well ahead of the January deadline in order to meet EU requirements.

The EU must decide by the end of January whether to initiate an excessive deficit procedure against Austria. In response, both the FPÖ and ÖVP are working urgently to finalize an economic plan in time.

Despite the FPÖ's support for major tax cuts in their election manifesto, party leader Herbert Kickl now advocates for substantial fiscal reform, referring to the current debt situation as a "conflagration" that requires immediate attention.

Earlier coalition talks between the Social Democrats and ÖVP faltered over disagreements on tax increases. This led Austria's business community to back a coalition between the ÖVP and the FPÖ, which promises tax cuts and budgetary reforms.

By Tamilla Hasanova