BRUSSELS — The European Commission on Tuesday slapped a red flag on Finland for spending too much and warned others to tighten their belts to avoid getting the same treatment. 

The EU executive unveiled the full list of countries that are overspending, as part of the Commission’s biannual “European Semester” that checks whether governments are within the EU’s rules for public spending. 

Red flags, known as excessive deficit procedures (EDPs), signal concerns about countries’ financial health to investors. Brussels can impose a fine if governments refuse to adopt measures to bring their finances back in line.

Brussels reintroduced the EU’s rules for public spending last year after the Commission gave capitals free license during the pandemic, which plunged the EU’s economy into the worst recession since the Second World War.

While the bloc’s economy has picked up this year, many governments are struggling to comply with the EU’s rules amid trade tensions with the U.S. and mounting defense budgets to deter Russian aggression.

One of the countries on Russia’s doorstep, Finland, was reprimanded for exceeding the EU’s cap on budget deficits, which limits how much a country can spend beyond what it collects in taxes. 

The rules limit the deficit to 3 percent of a country’s economic output. Recent tweaks to the rules allow governments to spend an additional 1.5 percent of GDP on defense. But the numbers still don’t add up for Helsinki.

“The deficit in excess of 3 percent of GDP is not fully explained by the increase in defense spending alone,” Economy Commissioner Valdis Dombrovskis told reporters in Strasbourg. Germany narrowly avoided the same punishment.

Separately, the Commission checked whether governments’ expected spending in 2026 complies with their five or seven-year plans that were approved by Brussels. So far, Croatia, Lithuania, Slovenia, Spain, Bulgaria, Hungary, the Netherlands, and Malta aren’t doing enough. Failure to act could see Brussels reprimand the eight countries at the next European Semester in June. 

POLITICO took a deeper look at some of the key countries and graded their current performances.

Finland: E

The Nordic state got a slap on the wrist from Brussels as its deficit is set to exceed the EU’s limit for the next two years. Once a paragon of fiscal stability, Finland is now in the same EDP basket as the indebted nations of France, Italy, and Belgium.

As a result, Helsinki will have to reduce the deficit. That’s a tall order for a country facing overstretched social and health budgets, as well as a ballooning defense bill.

Romania: D+

Romania can breathe a sigh of relief after today’s announcement. Dombrovskis praised the country’s recent economic reforms and ruled out triggering the nuclear option — a suspension of the country’s payouts from the EU budget, which are worth billions. 

But the country is not out of the woods. At 8.4 percent of GDP, its 2025 deficit remains by far the highest in the EU, and painful domestic reforms will be required to reduce it significantly in the years to come.

Germany: C

The country’s budget deficit is expected to reach 3.1 percent of GDP this year. That’s technically a breach of the rules. But Brussels refrained from punishing the bloc’s economic powerhouse, because the breach is “fully explained by the increase in defense spending,” the Commission said in a statement.

But there is trouble ahead. Germany plans to continue its spending spree next year to juice growth, only curbing expenditure later. That won’t be easy, as China threatens the country’s export-driven economy and Chancellor Friedrich Merz’s grand coalition needs to deliver reforms to revive growth. Berlin is taking a huge gamble. Brussels too.

France: C-

France is in the middle of a budget crisis and is not even sure that it will manage to adopt the 2026 budget by the end of this year. That doesn’t seem to worry Brussels too much for the time being, especially considering that France received its EDP red flag in 2023. The Commission found that the French budget plans for next year are compliant with its recommendations and encouraged Paris to continue on this path. 

But not even France’s prime minister knows what his budget for next year will look like. Sébastien Lecornu has pledged to bring the deficit down to 5 percent of GDP. But that goal is at risk, as contradictory amendments to the draft budget in parliament undermine the chances of a deal before Christmas.

Hungary: F 

Hungary is facing a worrying situation because it’s not making the necessary cuts in 2026 to exit the EDP.

For now, the Commission has merely warned Hungary to cut spending in 2026. But if Budapest ignores such calls, Brussels might threaten to issue fines during its next budget review in Spring.

Hungarian Prime Minister Viktor Orbán is unlikely to heed Brussels’ calls as the country is heading to the polls next spring and he faces the risk of losing power after almost a decade. 

Italy: B-

Has Europe’s perennial fiscal bad boy turned good? That’s what it looks like, with Italy’s deficit set to fall to 2.6 percent of GDP next year, while government spending is forecast to stay below the limits imposed by the EU’s fiscal rules. That puts it on track to exit its EDP, if it can prove that debt is set to trend lower in the long term. Other good news: Rome’s tax take is trending above economic growth, helping to fill its coffers and pay down debt. 

It’s not all good news. Italy remains the second-most indebted country in the EU. That isn’t changing next year, with government debt expected to increase to 137.9 percent of GDP. But any positive change is welcome, especially when it’s the class clown who is finally hitting the books.