A tale of two deficits

This article is a part of Poland Unpacked. Weekly intelligence for decision-makers

The autumn Excessive Deficit Procedure (EDP) notifications were published today. These are reports submitted by EU member states to the European Commission, covering public deficits and debt in previous years, along with forecasts for the current year. Published twice a year, in spring and autumn, they are used to monitor compliance with EU fiscal rules.

Poland second only to Hungary

According to the latest figures, Poland’s general government deficit reached 7.2% of GDP in 2025 and is expected to decline slightly to 7.1% in 2026. The 2025 figure is marginally better than the previous forecast of 7.3%, although this is largely a matter of rounding. The actual improvement in the fiscal balance amounts to just 0.02 percentage points. The estimate for 2026 is consistent with the national budget. No surprises there.

The state of public finances across individual EU countries, however, makes for more interesting reading. According to the autumn EDP notifications, Poland is expected to record the second-largest deficit in the EU in 2026. Only Hungary is forecasting a higher figure, at 7.5% of GDP.

Hungary’s deficit is largely a legacy of Viktor Orbán’s expansionary fiscal policies, including costly measures introduced ahead of the parliamentary election. These included extending tax breaks for large families, gradually introducing a 14th annual pension payment and launching a subsidized mortgage programme.

The new government led by Péter Magyar has announced plans to scale back some of these measures, including tax exemptions for mothers and the further rollout of the 14th pension payment. Its draft budget, presented in October, envisages reducing the deficit from 7.5% of GDP in 2026 to 4.9% in 2027.

This represents a substantial fiscal consolidation. Its timing is consistent with research showing that governments are most likely to implement fiscal tightening early in their term.

Large deficits are also expected in Romania (6% of GDP), France (5%) and Germany (4.8%). At the other end of the spectrum are four countries forecasting budget surpluses: Cyprus, Denmark, Ireland and Greece.

Germany’s fiscal stimulus

Public finances are expected to deteriorate across much of the EU in 2026. According to the autumn EDP notifications, 16 of the bloc’s 27 member states will record a weaker general government balance than a year earlier.

The largest deteriorations are expected in Hungary (2.7 percentage points of GDP), Estonia (2.4 percentage points) and Germany (1.9 percentage points). In Germany’s case, this partly reflects increased spending on defense and infrastructure investment.

At the opposite end of the spectrum is Romania, which plans the largest fiscal tightening in the EU, equivalent to 1.8 percentage points of GDP. Poland also expects an improvement, but a much smaller one, of just 0.2 percentage points. This means that despite a slight reduction in its deficit, Polish public finances will remain under considerable strain.

Germany and Romania are pursuing fiscal policies in opposite directions in 2026. Germany is increasing its deficit, helping to stimulate economic recovery. According to the International Monetary Fund (IMF), German GDP is expected to grow by 1.3% in 2026, compared with just 0.2% in 2025. At 4.8% of GDP, Germany’s deficit in 2026 is set to be its highest in 30 years.

Romania, meanwhile, is reducing its deficit through tax increases and spending cuts, further weakening an already sluggish economy. After GDP growth of 0.9% in 2024 and 0.7% in 2025, the IMF forecasts another year of just 0.7% growth in 2026.

The contrasting fiscal policies may therefore partly explain Germany’s accelerating growth and Romania’s economic stagnation, although they are far from the only factors influencing economic performance.

Debt growth since 2023

According to the notifications, Poland’s public debt is expected to reach 67.6% of GDP in 2026, 2.5 percentage points higher than the figure projected in spring 2026 (65.1% of GDP).

Poland is therefore set to record the largest increase in public debt relative to GDP in the entire EU between 2023 and 2026. Its debt-to-GDP ratio will climb from 49.5% to 67.6%, an increase of 18.1 percentage points.

Finland comes next, with an increase of 12.9 percentage points, followed by Romania at 12 percentage points. Meanwhile, the largest reductions in debt relative to GDP are expected in Greece (27.3 percentage points) and Cyprus (21.8 percentage points).