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The International Monetary Fund estimates that population aging, the energy transition and increased defense spending will exert strong pressure on the public finances of European countries...
The International Monetary Fund (IMF) warns that the public debt of European Union countries could increase significantly over the next two decades. IMF Managing Director Kristalina Georgieva stated that, in the absence of new policy measures, the simple average of public debt of EU countries could exceed 130% of Gross Domestic Product (GDP) by 2040.
According to Georgieva, existing pressures on state budgets, related to pensions, healthcare and an aging population, will be compounded by the costs of the energy transition and increased military spending. The IMF estimates that these factors could add additional spending reaching up to 5% of GDP by 2040.
She stressed that countries with limited fiscal space will need to finance increased defense spending in a budget-neutral manner, through tax increases or cuts to other public spending.
The role of reforms
The IMF places particular emphasis on structural reforms and the completion of the European common market, with the aim of boosting the weak rates of economic growth in most EU countries.
According to Georgieva, even moderate growth-enhancing reforms could reduce the fiscal effort needed to put debt on a downward trajectory by about a fifth. The more ambitious the economic development reforms, the less need for fiscal austerity measures will be.
The IMF's Fiscal Monitor report, published in April, forecasts that the Eurozone's public debt is expected to increase from 87.1% of GDP in 2025 to 89.7% in 2031. Only 4 countries, Greece, Cyprus, Spain and Portugal, are projected to record a decrease in debt over this period.
Outlook for Greece
The IMF predicts that Greece's public debt will fall to 110.9% of GDP by 2031, from 145.7% a year earlier. Over the same period, France's debt is expected to rise to 120.7% from 116%, while Belgium's is expected to rise to 122.3% from 106.3%.
Finland's debt is projected to reach 100.8% of GDP from 89.3%, while Italy's is expected to fall slightly to 136.1% from 137.1%. The IMF and credit rating agencies estimate that the factors that contributed to the significant reduction in Greek debt from 210% of GDP in 2020, including strong economic growth, primary surpluses, low interest rates and long repayment terms, will continue to support its reduction in the coming years.
The Greek debt profile has also improved thanks to its active management, through the early repayment of loans to the IMF and the acceleration of the repayment of bilateral loans from the first financial rescue program.
The IMF notes that Greece does not face the same pressure to increase defense and pension spending as many other EU countries. The country's military spending already remains at high levels, around 2.9% of GDP in 2025 according to NATO methodology, and is expected to remain relatively stable over the next decade.
Also, according to the European Commission's report on population aging, pension spending in Greece is expected to gradually decline in the long term and approach the EU average, while healthcare spending will increase at controlled rates that are not expected to hinder the reduction of public debt. / Pamphlet /
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