The International Monetary Fund warns that the European Union will face huge budgetary pressures over the next 15 years, mainly due to increased needs in defence, energy and pensions.
The IMF says that without substantial intervention, the public debt of EU countries risks skyrocketing to unsustainable levels.
The European Union will have to manage very high spending by 2040, with the IMF sounding a warning bell to EU finance ministers during an informal meeting in Nicosia.
The paper presented by the Fund said that unless immediate action is taken, the path of public debt will become particularly problematic for many European economies.
The IMF says: “If no action is taken, public debt will follow an unsustainable path. With unchanged policies, the debt of the average European country will reach 130% of GDP by 2040, almost double the current level.”
The changes proposed by the IMF
The Fund believes that the EU needs to move on several levels simultaneously. Among other things, it proposes making it easier for workers to move between member states and providing more incentives for businesses to hire.
At the same time, he calls for greater integration in energy markets and better use of European citizens’ savings through investment across the Union.
In the same context, the IMF recommends a more uniform regulatory framework in Europe, as currently many laws differ significantly from country to country, creating barriers to investment and growth.
Pension changes are also on the table
Special mention is made of the pension system, with the Fund arguing that reforms and raising the retirement age could reduce future pressures on government budgets.
In addition, it suggests governments should offer state guarantees for higher-risk investments involving low-carbon projects and climate-resilient infrastructure to attract more private capital.
The IMF also believes that sectors such as innovation, energy and defence should be treated as common European goods and financed through common borrowing.
The reactions to the common debt
The issue of common European borrowing continues to cause strong disagreements within the EU.
Countries such as Italy, Spain and France appear positive to such a prospect, while Germany and several northern European states consistently reject the idea.
Eurogroup chairman Kyriakos Pierakakis, told Reuters: “This is one of the areas where there are differences of opinion, but it is certainly one of the areas we will discuss in the coming months.”
