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1. The excess of the government deficit over the reference value shall be considered exceptional, in accordance with the second indent of point (a) of Article 126(2) of the Treaty on the Functioning of the European Union (TFEU), if it results from the existence of a severe economic downturn in the euro area or the Union as a whole established by the Council in accordance with Article 25 of Regulation (EU) 2024/1263 or from exceptional circumstances outside the control of the government with a major impact on the public finances of the Member State concerned, in accordance with Article 26 of that Regulation. In addition, the excess over the reference value shall be considered temporary where budgetary forecasts provided by the Commission indicate that the deficit will fall below the reference value following the end of the severe economic downturn or the exceptional circumstances referred to in the first subparagraph.

2. Where the ratio of the government debt to gross domestic product (GDP) exceeds the reference value, it shall be considered sufficiently diminishing and as approaching the reference value at a satisfactory pace in accordance with point (b) of Article 126(2) TFEU if the Member State concerned respects its net expenditure path as set by the Council. The Commission shall prepare a report in accordance with Article 126(3) TFEU where the ratio of the government debt to GDP exceeds the reference value, the budgetary position is not close to balance or in surplus and where the deviations recorded in the control account of the Member State exceed:

(a) either 0,3 percentage points of GDP annually, (b) or 0,6 percentage points of GDP cumulatively.

3. The Commission, when preparing a report under Article 126(3) TFEU, shall take into account all the relevant factors as indicated in that Article, in so far as they significantly affect the assessment of compliance with the deficit and debt criteria by the Member State concerned. The report referred to in Article 126(3) TFEU shall reflect, as appropriate:

(a) the degree of public debt challenges based on the methodology referred to in Article 10 of Regulation (EU) 2024/1263, the evolution of the government debt position and its financing, and the related risk factors, in particular the maturity structure, the currency denomination of the debt and contingent liabilities, including any implicit liabilities related to ageing and private debt;

(b) the developments in the medium-term budgetary positions, including, in particular, the size of the actual deviation from the net expenditure path as set by the Council, in annual and cumulative terms as measured by the control account;

(c) the developments in the medium-term economic position, including potential growth, inflation developments and cyclical developments compared to the assumptions underlying the net expenditure path as set by the Council;

(d) the progress in the implementation of reforms and investments, including in particular policies to prevent and correct macroeconomic imbalances and policies to implement the common growth and employment strategy of the Union, including those supported by the Recovery and Resilience Facility established by Regulation (EU) 2021/241 of the European Parliament and of the Council (), and the overall quality of public finances, in particular the effectiveness of national budgetary frameworks;

(e) the increase of government investment in defence, where applicable, considering also the time of recording of military equipment expenditure. The Commission shall give due and express consideration to any other factors which, in the opinion of the Member State concerned, are relevant in order to comprehensively assess compliance with the deficit and debt criteria and which the Member State has put forward to the Council and the Commission. In that context, particular consideration shall be given to financial contributions to foster international solidarity and achieve the common priorities of the Union referred to in Article 13, point (c), of Regulation (EU) 2024/1263.

4. The Council and the Commission shall make a balanced overall assessment of all the relevant factors, specifically the extent to which they affect the assessment of compliance with the deficit and/or the debt criteria as aggravating or mitigating factors. Where the Member State faces substantial public debt challenges as referred to in point (a) of the second subparagraph of paragraph 3 of this Article, it shall be considered a key aggravating factor. Favourable cyclical economic, budgetary and financial developments shall not be considered as mitigating factors, while unfavourable developments may be considered as mitigating factors.

When assessing compliance on the basis of the deficit criterion, if the ratio of the government debt to GDP exceeds the reference value, those factors shall be taken into account in the steps leading to the decision on the existence of an excessive deficit provided for in Article 126(4), (5) and (6) TFEU only if the double condition of the overarching principle — that, before these relevant factors are taken into account, the general government deficit remains close to the reference value and its excess over the reference value is temporary — is fully met. However, those factors shall be taken into account in the steps leading to the decision on the existence of an excessive deficit when assessing compliance on the basis of the debt criterion.

5. Where Member States are allowed to deviate from their net expenditure path pursuant to Articles 25 and 26 of Regulation (EU) 2024/1263, the Commission and the Council, in their assessment, may decide not to reach a conclusion regarding the existence of an excessive deficit.

6. If the Council, acting under Article 126(6) TFEU, decides that an excessive deficit exists in a Member State, the Council and the Commission shall, in the subsequent procedural steps of Article 126 TFEU, take into account the relevant factors referred to in paragraph 3 of this Article, as they affect the situation of the Member State concerned, including as specified in Article 5(2) of this Regulation, in particular in establishing a deadline for the correction of the excessive deficit and eventually extending that deadline. However, those relevant factors shall not be taken into account for the decision of the Council under Article 126(12) TFEU on the abrogation of some or all of its decisions under Article 126(6) to (9) and (11) TFEU.