ECB Economic Bulletin: Economic Policies Should Aim to Reduce High Debt Levels

19 June 2024

By Isabel Teles – FRANKFURT (Econostream) – Policymakers should aim to lower elevated public debt, according to the European Central Bank's latest Economic Bulletin, published Wednesday.

‘Economic policies should seek to gradually reduce high levels of public debt and prepare for the future, which will also help to ensure a sound environment for the conduct of the euro area’s single monetary policy’, the bulletin said.

The main fiscal burdens to the euro area countries in the coming years were demographic ageing, increased defence spending, climate change and digitalisation, the bulletin said.

‘These developments will be challenging enough in isolation, and countries will face all of them simultaneously’, the bulletin said. ‘Consequently, action needs to be taken today – especially in high-debt countries facing elevated interest rates and the associated risks.’

The bulletin featured an indicator estimating the fiscal adjustment that each euro area country would need to implement in order to reach the long-term target of government debt-to-GDP ratio of 60% by 2027, as referred to in the Treaty.

‘Achieving a government debt-to-GDP ratio of 60% by 2070 from today’s debt levels would require euro area governments to immediately and permanently increase their primary balances by 2% of GDP on average’, the bulletin said.

Ambitious structure reforms that support long-term growth would contribute to reducing the fiscal burden, according to the bulletin.

‘In some countries, the fiscal pressures discussed may not strengthen in the short term; however, there is no room for complacency, as the longer the adjustment is postponed, the larger the eventual adjustment cost will be’, the bulletin noted.