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IMF Warns EU Public Debt Could Soar to 130% of GDP by 2040
🇬🇷 Greece /Economy & Trade

IMF Warns EU Public Debt Could Soar to 130% of GDP by 2040

From Ta Nea · () Greek

Translated from Greek, summarized and contextualized by DistantNews.

At a glance

News Named sources Context piece
  • The IMF predicts the EU's public debt could exceed 130% of GDP by 2040 without policy changes.
  • Rising costs from an aging population, energy transition, and increased defense spending will strain budgets.
  • The IMF advises fiscal neutrality for defense spending and urges structural reforms to boost growth and curb debt.

The European Union faces a stark warning from the International Monetary Fund: public debt could more than double to over 130% of GDP by 2040 if current policies remain unchanged. IMF Managing Director Kristalina Georgieva highlighted that aging populations, the energy transition, and escalating defense expenditures will add significant pressure to state budgets. These combined costs are estimated to reach 5% of GDP by 2040.

Georgieva stressed that countries with limited fiscal space must finance their defense needs in a budget-neutral manner. This necessitates difficult choices, either increasing taxes or cutting other public spending. The IMF also emphasized the critical role of reforms that strengthen the single European market to improve sluggish growth rates and control rising debt levels. Even moderate growth-enhancing structural reforms could reduce the required fiscal adjustment by about one-fifth for the average European economy to put debt on a downward trajectory.

Without policy measures, we estimate that the simple average public debt of EU countries would more than double to over 130% of GDP by 2040.

— Kristalina GeorgievaThe IMF Managing Director warned about the projected increase in the EU's public debt.

The Fiscal Monitor report from April confirms this upward debt trend for the EU. In the Eurozone, public debt is projected to rise from 87.1% of GDP in 2025 to 89.7% by 2031. With the exception of Greece, Cyprus, Spain, and Portugal, debt is expected to increase in other member states. Notably, the IMF forecasts that by 2031, Greece's debt will be lower than Italy's, France's, and Belgium's, and close to Finland's, a country that previously opposed loans to Greece.

According to IMF projections, Greek debt will fall to 110.9% of GDP by 2031, down from 145.7% the previous year. In contrast, French debt is expected to rise to 120.7% from 116%, Belgian debt to 122.3% from 106.3%, and Finnish debt to 100.8% from 89.3%. Italian debt is projected for a marginal decrease to 136.1% from 137.1%. The IMF and rating agencies attribute Greece's significant debt reduction from 210% of GDP in 2020 to strong growth, primary surpluses, low average interest rates, and long repayment terms, factors expected to support continued debt reduction.

For the average European economy, even structural reforms that boost growth moderately could reduce the required fiscal adjustment by about one-fifth to put their debt on a downward trajectory.

— Kristalina GeorgievaThe IMF head highlighted the impact of structural reforms on debt reduction.
DistantNews Editorial

Originally published by Ta Nea in Greek. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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