IMF Working Papers

Taming Public Debt in Europe: Outlook, Challenges, and Policy Response

By Saioa Armendariz, Ezequiel Cabezon, Larry Q Cui, Silvia Domit, Alina Iancu, Giacomo Magistretti, Rohan Srinivas, Yu Ching Wong

August 23, 2024

Download PDF More Formats on IMF eLibrary Order a Print Copy
More formats on IMF eLibrary Order a Print Copy

Preview Citation

Format: Chicago

Saioa Armendariz, Ezequiel Cabezon, Larry Q Cui, Silvia Domit, Alina Iancu, Giacomo Magistretti, Rohan Srinivas, and Yu Ching Wong. "Taming Public Debt in Europe: Outlook, Challenges, and Policy Response", IMF Working Papers 2024, 181 (2024), accessed December 21, 2024, https://doi.org/10.5089/9798400285806.001

Export Citation

  • ProCite
  • RefWorks
  • Reference Manager
  • BibTex
  • Zotero
  • EndNote

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Public debt ratios in Europe increased significantly in response to the pandemic and energy shocks and have remained higher than before the pandemic in most countries. Going forward, the projected public debt trajectories are broadly flat overall in advanced Europe but have a rising profile in emerging Europe. Government financing needs are still elevated, and the unwinding of quantitative easing by major central banks adds to financing pressures. Moreover, there are important medium- to long-term spending pressures from defense, climate transition, and aging, which are not fully reflected in the projected baseline trajectories. Against this backdrop, the risk that debts will not stabilize in the medium term has increased. Debt stabilization will hinge critically on achieving ambitious fiscal consolidation and sustained growth. Facing these elevated risks, policymakers need to implement carefully-calibrated fiscal adjustments that ensure debt sustainability while supporting growth. They could target debt stabilization over a longer, 10-year, horizon—while adhering to credible fiscal rules such as the reformed EU Economic Governance Framework—but with a high probability to reassure markets that debts will indeed be tamed.

Subject: Fiscal consolidation, Fiscal policy, Fiscal stance, Government debt management, Government debt planning, Public debt, Public financial management (PFM)

Keywords: Debt stabilization, Europe, Financing pressure, Fiscal consolidation, Fiscal stance, Global, Government debt holding, Government debt management, Government debt planning, Government financing, Optimal fiscal path, Public debt, Stabilization probability

Publication Details

You May Also Be Interested In...

A Confidence-Financial Inclusion Nexus in the Caucasus and Central Asia?

December 20, 2024

Ukraine: Sixth Review Under the Extended Arrangement Under the Extended Fund Facility, Requests for Modification of a Performance Criterion, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for Ukraine

December 20, 2024

Islamic Republic of Mauritania: Staff Report for the 2024 Article IV Consultation, Third Review Under the Arrangements Under the Extended Credit Facility and Extended Fund Facility, Request for Modification of Quantitative Performance Criteria, and Second Review Under the Resilience and Sustainability Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for the Islamic Republic of Mauritania

December 20, 2024

Ecuador: 2024 Article IV Consultation and First Review Under the Extended Arrangement Under the Extended Fund Facility and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for Ecuador

December 19, 2024