This week the European Commission proposed that Poland, Hungary and Slovakia be put under the EU’s Excessive Deficit Procedure (Romania is already under the EDP). The three CEE countries have now until September 20 to explain how they will rectify their budget imbalances.

An argument can be made that it is bad economics and politics for the European Commission to restart imposing the Stability and Growth Pact’s budget restrictions on member states – particularly at this time of economic insecurity and rising populism – but in Central and Eastern Europe (CEE) this case is harder to make.

Yes, the pact has in the past deterred countries from investing for growth at a time of record-low interest rates. And CEE member states were among the hardest hit by the energy price shock that followed the 2022 Russian invasion of Ukraine, and felt they had to respond by spending to cushion the blow on citizens and companies.

However, interest rates are now risen, making public investment less of a slam dunk, and it is now two years since the energy price shock and prices have fallen back, so subsidies should now have been withdrawn. Moreover the COVID-19 pandemic and the energy crisis led public debt to soar across the bloc, and the Commission is surely right to now push member states to start to address this.

Six CEE member states (out of 12 in total across the bloc) were found to be in breach of the deficit criterion of 3% of gross domestic product (GDP): Czechia, Estonia, Hungary, Poland, Slovakia and Slovenia.

Three were let off because of “relevant factors”: Czechia because it is set to meet the criterion this year after a significant austerity package; Estonia because it is still stuck in a three-year recession; and Slovenia because it suffered a serious flood this year and is again expected to be back under the 3% limit next year.

The remaining three – Poland, Hungary and Slovakia – have one obvious thing in common: they are (or were recently) all ruled by populist governments that dragged their feet on making budget adjustments and ending energy subsidies.

Viktor Orban’s radical rightwing Hungarian government is now beginning to get serious about closing its deficit, though the Commission expects this still to be 4.5% in 2025. Hungary’s public debt position is also worrying, at 73.5% of GDP, and it is forced to pay high bond yields as a result.

Robert Fico’s left-right Slovak government – which took over in October after three and a half years of erratic and often populist centre-right rule – has made little attempt to address its budget gap. Its budget deficit is still expected to be 5.4% next year.

The odd-man out is Donald Tusk’s Poland, which only took over from the radical right-wing Law and Justice government in December.

Poland pleaded that its deficit was partly due to the ramp-up in its defence spending, which is in Europe’s overall benefit, given its strategic position on Nato’s Eastern Flank. Yet at the same time, Tusk’s government has shown little appetite to address the deficit it inherited. The deficit is still expected to be 4.6% next year. Not including Poland in the EDP would surely have been seen as a politically biased decision against Hungary and its Slovak ally.

So if the economic case does not add up, what about the political case for not imposing budget restrictions?

No doubt both Orban and Fico will paint the Commission’s decision as yet another example of the EU’s attack on their governments, and they will tell their citizens that the cuts are its fault. This will have some effect, particularly given their control of the domestic media environment.

When they submit their adjustment plans this autumn, it will therefore be vital that the new Commission ensures that the two populist governments really own the austerity they have to impose because of their populism.  Otherwise, the EU risks strengthening populist forces that are bad at solving problems but very good at blaming others for them.

This blog  first appeared on bne IntelliNews' Editor's Picks. To sign up for the daily Editor's Picks newsletter, please click here.