Published on Tuesday, May 17, 2022

Europe | Debt and fiscal rules

The high levels of public debt that have been building up since 2020 and the need to lower this burden have prompted a debate on fiscal rules relating to national accounts, aside from the matter of Europe approving common financing instruments to address the big strategic challenges that lie ahead.

Key points

  • Key points:
  • Eurozone public debt rose from 85% to 96% of GDP between 2019 and 2021, though with a very mixed bag of results between countries.
  • National governments are now presenting their stability plans in Brussels, with ambitious reduction targets, aided by a recovery that remains on track for the time being, by high levels of inflation expanding nominal GDP, and by long-term interest rates which, while rising, still remain low and will take time to feed through to the average cost of debt.
  • Thus, Italy’s public debt should fall from 151% of GDP to 141% by 2025 according to official plans, while Spain’s is set to fall from 118% to 110%.
  • Meanwhile, the European Union has resumed a consultation process launched in early 2020 on the reform of the Stability and Growth Pact (SGP), which was postponed during the pandemic.
  • The proposals made by various institutions and think-tanks largely coincide on this key expenditure rule: the ratio of expenditure to GDP cannot be increased unless it is financed by taxes.

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