The picture painted by the IMF regarding the future of European debt does not exactly inspire optimism.
The Fund’s Managing Director, Kristalina Georgieva, warned that without immediate action, the situation could spiral dramatically by 2040.
“Without measures, we estimate that the simple average of public debt in EU countries would more than double to over 130% of GDP in 2040,” he noted.
The Fund sees an explosive combination of pressures weighing on government budgets. Increased needs for pensions, healthcare, energy transition, and especially new defense spending are creating an explosive economic landscape for most European governments.
According to the IMF chief, the total additional cost of these sectors could reach 5% of GDP by 2040. In fact, she made it clear that many countries will be forced to make difficult decisions.
“Countries that lack fiscal space will have to increase their defense spending in a fiscally neutral manner,” he said, leaving open the possibility of new tax burdens or cuts to other public spending.
IMF: Greece is turning a “new page”
Amid the bleak European landscape, Greece is one of the few exceptions. The IMF forecasts that Greek public debt will continue to decline steadily in the coming years.
According to forecasts, Greek debt will fall to 110.9% of GDP in 2031, down from 145.7% last year. At the same time, countries such as France and Belgium are expected to see their debt skyrocket.
French debt is projected to reach 120.7% of GDP, while Belgian debt is projected to reach 122.3%. Even Finland, which had previously taken a hard line against Greece during the years of the memoranda, is expected to see its debt rise above 100% of GDP.
It is noteworthy that Greek debt is estimated to be even lower than Italy’s, which is projected to reach 136.1% of GDP.
The reasons why Greek debt is declining
The IMF attributes the significant improvement in Greece’s outlook to specific factors. Among them are the strong growth of recent years, the primary surpluses, the low average borrowing rate, and the long debt repayment period.
The active management of Greece’s debt obligations also played a decisive role, such as the early repayment of loans to the IMF and the accelerated repayment of intergovernmental loans under the first memorandum.
The Fund also notes that Greece is not under the same pressure as other European countries regarding defense spending. Military spending is already at high levels, at approximately 2.9% of GDP for 2025, and is expected to remain relatively stable over the next decade.
At the same time, the pension reforms implemented in recent years are expected to gradually ease the pressure on the pension system.
The reforms demanded by the IMF
The International Monetary Fund insists that without deep reforms, Europe will struggle to contain its debt.
Kristalina Georgieva placed particular emphasis on completing the single European market and boosting growth, which remains sluggish in many economies.
“For the average European economy, even structural reforms that moderately boost growth could reduce the necessary fiscal adjustment by about one-fifth,” he emphasized.
