European Union countries will have to deal with huge spending on defense, energy and pensions over the next 15 years, the International Monetary Fund told EU finance ministers on Saturday, proposing a combination of reforms, fiscal consolidation and joint borrowing as a way to manage this problem.
"If no action is taken, public debt will follow an unsustainable path. With unchanged policy, the debt of the average European country will reach 130% of GDP by 2040 – almost double what it is today," the IMF said in a document used as a basis for ministers' discussions at an informal meeting in Nicosia.
The document said that, to avoid such a scenario, EU countries need to improve incentives for citizens to move within the 27-member Union to find work and for companies to hire them. The EU should also consolidate its energy markets, facilitate the flow of citizens' savings across the Union into profitable investments and consolidate legislation, which currently often varies from country to country, as reported by Reuters. Reforms to pension systems and raising the retirement age would also help, as would government guarantees for higher-risk investments in low-carbon and climate-resilient projects, which would help attract private capital to them. Finally, governments should agree that innovation, energy and defence are European public goods and should be financed through joint borrowing. Common debt is a highly controversial issue in the EU, where some countries such as Spain, Italy or France are in favour, but others, such as Germany and several northern European countries, strongly oppose the idea.
"This is one of those areas where there are differences of opinion, but it is certainly one of the areas that we will discuss in the coming months," eurozone finance minister president Kyriakos Pierrakakis told Reuters. The IMF said that even with the reforms, most EU countries would still need fiscal consolidation to put debt on a declining path, although the more ambitious the reforms, the less consolidation would be required. If governments do not act now, the problem will only get worse, the IMF said. "The 'cover-up' approach that many countries have adopted so far is reaching its limits, and a more strategic response seems necessary to address growing spending pressures," the IMF said.
"If no action is taken, public debt will follow an unsustainable path. With unchanged policy, the debt of the average European country will reach 130% of GDP by 2040 – almost double what it is today," the IMF said in a document used as a basis for ministers' discussions at an informal meeting in Nicosia.
The document said that, to avoid such a scenario, EU countries need to improve incentives for citizens to move within the 27-member Union to find work and for companies to hire them. The EU should also consolidate its energy markets, facilitate the flow of citizens' savings across the Union into profitable investments and consolidate legislation, which currently often varies from country to country, as reported by Reuters. Reforms to pension systems and raising the retirement age would also help, as would government guarantees for higher-risk investments in low-carbon and climate-resilient projects, which would help attract private capital to them. Finally, governments should agree that innovation, energy and defence are European public goods and should be financed through joint borrowing. Common debt is a highly controversial issue in the EU, where some countries such as Spain, Italy or France are in favour, but others, such as Germany and several northern European countries, strongly oppose the idea.
"This is one of those areas where there are differences of opinion, but it is certainly one of the areas that we will discuss in the coming months," eurozone finance minister president Kyriakos Pierrakakis told Reuters. The IMF said that even with the reforms, most EU countries would still need fiscal consolidation to put debt on a declining path, although the more ambitious the reforms, the less consolidation would be required. If governments do not act now, the problem will only get worse, the IMF said. "The 'cover-up' approach that many countries have adopted so far is reaching its limits, and a more strategic response seems necessary to address growing spending pressures," the IMF said.
