On Wednesday, the European Commission officially reprimanded Austria for violating the EU’s budget rules, adding to the challenges faced by the country’s new conservative-led government as it attempts to reverse years of economic downturn.

This move by Brussels, which initiated an “excessive deficit procedure” (EDP) against Vienna, follows a recent upward revision of Austria’s projected fiscal deficit for 2025, from 3.7% to 4.4% of its annual GDP, pushing it further beyond the EU’s 3% limit.

A senior Commission official labelled Austria as “an outlier” among EU countries with public deficits, anticipating that Austria will continue to run deficits exceeding 4% of GDP in 2026.

The upward revision largely reflects Austria’s weaker-than-expected economic performance in recent months, which has reduced income and corporate tax revenues and led the government to effectively give up on meeting the EU’s budget rules this year, Euractiv reports.

“There is a clear case for opening [an] excessive deficit procedure,” according to Economy Commissioner Valdis Dombrovskis.

Whereas Austrian Finance Minister Markus Marterbauer has acknowledged that reducing the country’s deficit below 3% isn’t possible “at short notice without causing significant damage to the economy and employment”.

Furthermore, low investment and continued weak external demand, particularly from neighbouring Germany, prompted the EU executive to cut Austria’s 2025 growth forecast from 1% to -0.3%, setting the nation on track for its third consecutive year of economic contraction.

Austria’s economic challenges have been worsened by months of political instability, which only eased in March when a three-party coalition government, led by Christian Stocker’s conservative People’s Party (ÖVP), took office.

The country narrowly avoided an EDP in January after a potential government led by the far-right Freedom Party (FPÖ) promised to reduce the deficit below 3% by the end of 2025.

However, negotiations between the FPÖ and the ÖVP, its intended coalition partner, quickly fell apart. As a result, the ÖVP, after previously failing to establish a centrist coalition following the FPÖ’s win in September’s parliamentary elections, renewed its efforts to form a government with the Social Democrats (SPÖ) and the liberal Neos party.