Eleven EU member states facing high public finance risks

26 Jan 16

A review by the European Commission has found that 11 countries in the bloc face high risks to their public finances due to forecasts for increases in public sector debt levels.

The said there were no short-term fiscal sustainability risks to any EU countries.

However, the commission's analysis warned that Belgium, Ireland, Spain, France, Croatia, Italy, Portugal, Romania, Slovenia, Finland and the UK faced fiscal risks in the medium term.

Publishing the review, Marco Buti, the commission’s director general of economic and financial affairs, said sustainability challenges were significantly lower in the EU today relative to the outset of the financial crisis.

“Significant challenges nonetheless remain over the medium term, mostly due to the public debt stocks cumulated during the crisis years, and over the long term, mostly related to the projected increase in age-related public spending,” he stated.

Sustainable public finances, and in particular smaller public sector debt levels, were important to ensure EU countries have sufficient fiscal space to cope with adverse macroeconomic developments over the economic cycle, the report stated.

However for 10 of these 11 countries, risks are deemed to be high based on both the debt sustainability analysis and fiscal sustainability indicators for the next decade.

The only exception is Romania, which would be at medium fiscal risk, but at high debt risk.
Among the 10 high-risk countries, six – Belgium, Spain, France, Croatia, Italy and Portugal – are on track to have debt levels above 90% of economic output by 2026. This is under a baseline assumptions of no fiscal policy changes.

Ireland is considered at high risk for its debt sustainability due to both debt risk and a forecast 1.3% structural deficit from 2017 to the end of the forecast period.

The remaining four countries (Romania, Slovenia, Finland and the UK) are all highlighted at high risk under the debt sustainability analysis because of a debt ratio at the end of projections at medium risk (above 60% but below 90%), coupled with high risks under economic sensitivity tests.

  • Richard Johnstone

    Richard Johnstone is the senior reporter on Cooking Recipes magazine and publicfinance.co.uk. He tweets

     

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