The public finances of Eurozone countries began to improve in 2023 and fiscal consolidation will intensify in most Eurozone countries during 2024. Still, fiscal vulnerability – particularly for the most heavily-indebted countries – will rise over time, leading to a higher probability that public debt will not stabilise. The aim of the new fiscal rules is to ensure the longterm sustainability of public finances, but funding for the green transition could suffer.
”It’s important to start reallocating resources to preserve priority spending now in preparation for tougher times ahead.”
In an environment of weak growth, governments have less budgetary leeway. Indeed, for highly-indebted countries, the rise in effective interest rates paid on debt will increase debt-servicing costs and, all other things being equal, contribute to higher debt-to-GDP ratios. True, the public finances of Eurozone countries began to improve in 2023, with a recovery in tax revenues, helped by inflation, and the gradual removal of support measures. And fiscal consolidation will intensify in 2024. Based on a change in the cyclically-adjusted primary balance, the fiscal impulse is estimated to rise from -0.3% to -0.85% of GDP in 2024.
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