How Can Europe Pay for Things That It Can't Afford

Summary

Europe has managed major shocks, but growth is slowing, export gains are reversing due to tariffs, and bond markets reflect rising risks. Interest rate cuts and increased fiscal spending, including defense, have not spurred private demand. The productivity gap with the US remains wide, and structural reforms are lagging. National priorities and slow EU decision-making hinder deeper integration of capital, labor, and product markets. Without stronger growth and fiscal consolidation, average European debt could reach 130 percent of GDP by 2040, requiring significant fiscal adjustment. Near-term policies should maintain price stability, start fiscal consolidation, and keep trade open.

Subject: Fiscal consolidation, Fiscal policy, Fiscal stance, Labor, Pensions, Public debt

Keywords: Baltics, Debt simulation, Eastern Europe, Europe, Fiscal consolidation, Fiscal stance, Greatest financing challenge, Pensions, Policy action, Policy package for Europe, Reference debt