Brussels, Belgium. IMF Managing Director Kristalina Georgieva has warned that European Union countries face a major fiscal challenge, with public debt projected to rise sharply over the coming decades if current trends continue. She said average public debt across the EU could more than double to above 130 per cent of gross domestic product by 2040 without policy action.
Debt projections
Georgieva said the simple average of public debt in EU countries would more than double to over 130 per cent of gross domestic product by 2040 if fiscal trends remain unchanged.
The warning reflects long-term projections tied to growing pressure on public finances across the bloc.
Rising spending pressures
According to Georgieva, state budgets are already under strain from rising pension costs, healthcare spending linked to ageing populations, and investment needed for the energy transition.
She said higher defence spending would add to these burdens, with total additional spending across these areas expected to reach 5 per cent of gross domestic product by 2040.
Policy options and reforms
Georgieva said countries with limited fiscal space would need to prioritise defence spending through fiscally neutral measures, which could require tax increases or cuts to other areas of public spending.
She also said structural reforms are needed to complete the single European market and support stronger growth, which remains a key factor in stabilising debt levels.
For the average European economy, she said even modest growth-enhancing structural reforms could reduce the fiscal adjustment needed to place debt on a downward path by about one-fifth, while more ambitious reforms would further reduce the required effort.
Eurozone outlook
The April edition of the IMF Fiscal Monitor also showed an upward trend in debt levels for the eurozone as a whole.
Eurozone public debt is projected to rise from 87.1 per cent of gross domestic product in 2025 to 89.7 per cent by 2031.
