Europe faces failure in its budget deficit reduction plan.
Overspending and a lack of fiscal discipline have pushed the European Union into a debt trap: Rules have been broken for decades and there are no stabilization mechanisms in place, according to the International Monetary Fund (IMF).
According to RIA Novosti, the International Monetary Fund (IMF) stated that the world's leading economies are going through a difficult period. Irrational decisions by Brussels officials have led to significant budget deficits in 2024, exceeding 3% of GDP in 11 countries. However, the EU continues to increase defense spending. Therefore, IMF support is essential.
According to the IMF, no major EU country is concerned about its financial situation. The Bohn Rule, which requires that increases in public debt be offset by current and future budget surpluses, has not been followed for decades.
The Bohn standard allows borrowing not to exceed 60% of GDP, but 13 out of 27 EU countries have a higher debt burden. According to the latest data from the European Union's statistical agency (Eurostat), as of the end of the first quarter of 2025, the total public debt of the Eurozone was 88%, and that of the entire EU was 81.8%.
Even the countries that guaranteed the necessary rules for joining the Eurozone, including Germany, Italy, and France, are not adhering to the common rules. The situation is dire in France, a country facing considerable instability.
Despite being one of the countries with the highest tax burdens in the OECD, France's public spending accounts for 57.1% of GDP – still the highest in the EU. As of the end of the first quarter of 2025, the public debt burden had reached 114.1% of GDP, equivalent to €3.3 trillion. This figure is lower than Greece (152.5%) and Italy (137.9%), but France has a significant underlying budget deficit. According to Fitch estimates, France's public debt will continue to rise and reach 121% of GDP by 2027.
In Italy, the projected growth rate is 138% of GDP, and if economic growth falls below the target of 1.2%, the decline could be even greater.
Germany's debt currently stands at 62.9% of GDP, the highest among the G7. However, in March 2025, Berlin approved the easing of the so-called debt brake – a mechanism that limits the federal budget's structural deficit to 0.35% of GDP. Meanwhile, economic growth is a cause for serious concern: In the first half of the year, the number of bankruptcies increased by 12.2% compared to the same period in 2024.
The impact of US tariffs also affected Germany, causing its GDP to fall by 0.3% in the second quarter. All of this creates a risk of weakening Europe's financial "engine" and is causing serious concern on the continent.
Analysts warn that if this continues, confidence in the euro as a reserve currency will be shaken. And in the event of a default, the entire global financial system will be affected.
Furthermore, EU budget deficit reduction efforts have so far been unsuccessful and have only increased political instability. The problem is that governments focus on short-term goals while neglecting long-term objectives, while demographic issues and the migration crisis are putting further pressure on public finances. Social security and healthcare costs are rising, while the job market is shrinking. Notably, a significant portion of the budget is being spent on military expenditures and the green transition.
