By David Barwick – FRANKFURT (Econostream) – European Central Bank Executive Board member Isabel Schnabel said Monday that stabilizing public debt would require large fiscal adjustments as governments faced growing demands from defense, interest payments, aging and climate change alongside slowing potential growth.

Schnabel’s slides, prepared for the second Federal Ministry for Economic Affairs and Energy Symposium on European Competitiveness in Berlin, described macroeconomic, fiscal and financial stability as closely interconnected and warned that structural factors threatened stability and increased the fiscal burden.

“Debt stabilization requires large fiscal adjustments amid shortening maturity structure,” one slide said.

The accompanying charts compared the structural primary balance adjustments required to stabilize debt in seven advanced economies and showed that government bills accounted for a larger share of gross borrowing in 2025 than in 2015-2019 in most of the countries examined.

The presentation offered no explicit guidance on the ECB’s next interest rate decision. On the outcome of the previous tightening cycle, it said: “Decisive monetary policy brought inflation back to target without causing a recession.”

A chart comparing the realized and market-implied deposit facility rate showed a substantially higher implied path on September 10 than the forward curve prevailing before the Iran war. The presentation did not endorse that market path or indicate what decision Schnabel favored at the ECB’s next meeting.

The euro area economy had remained resilient despite large shocks, according to the slides, which presented the ECB’s September baseline projections alongside milder, adverse and severe scenarios for growth and inflation.

Schnabel’s presentation also argued that sound regulation had allowed banks to absorb rather than amplify shocks. It said public balance sheets had absorbed successive shocks while private-sector leverage had declined.

At the same time, the slides showed rising pressure on government finances from defense spending and higher interest expenditure.

A fiscal package could support growth, but its effect would depend on how the additional spending was allocated, the presentation said. ECB calculations for Germany showed markedly different public-debt paths depending on whether the package was investment-led, included a larger consumption component or was accompanied by no additional fiscal adjustment.

The presentation said euro area potential growth was slowing amid structural headwinds to global competitiveness. Its charts showed the euro area losing global export market share in nonenergy goods since 2010 while China gained share.

Europe also risked falling behind in innovation because of low venture-capital investment, according to the slides. The presentation concluded that a European growth agenda should foster integration, innovation and sovereignty.