Europe faces failure in plan to reduce budget deficit
Overspending and lack of fiscal discipline have pushed the European Union into a debt trap: Rules have been broken for decades and there is no stabilisation mechanism, according to the International Monetary Fund (IMF).
According to RIA Novosti, the International Monetary Fund (IMF) said that the world's leading economies are going through difficult times. Irrational decisions by Brussels officials have led to significant budget deficits by 2024, which will exceed 3% of GDP in 11 countries. However, the EU continues to increase defense spending. Therefore, IMF support is urgently needed.
According to the IMF, no major EU country is concerned about its finances. 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 criterion allows debt to be no more than 60% of GDP, but 13 of the 27 EU countries have higher debt burdens. According to the latest data from the European Union's statistics agency, Eurostat, as of the end of the first quarter of 2025, the total public debt of the euro area was 88%, and that of the EU as a whole was 81.8%.
Even the guarantors of the rules needed to join the euro zone, including Germany, Italy and France, are not following the same rules. The situation is particularly dire in France, which is facing a lot of instability.
Despite having one of the highest tax burdens in the OECD, France’s public spending, at 57.1% of GDP, remains the highest in the EU. By the end of the first quarter of 2025, the public debt burden had reached 114.1% of GDP, or €3.3 trillion. This is lower than Greece (152.5%) and Italy (137.9%), but France has a significant primary budget deficit. Fitch estimates that France’s public debt will continue to rise, reaching 121% of GDP by 2027.
In Italy, growth is forecast at 138% of GDP, and if economic growth falls below the target of 1.2%, it will decline even further.
Germany’s debt is currently 62.9% of GDP, the highest in the G7. However, in March 2025, Berlin approved the easing of the so-called debt brake – a mechanism that limits the structural deficit of the federal budget to 0.35% of GDP. Meanwhile, economic growth is worrying: 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 is also having an impact on Germany, with GDP falling by 0.3% in the second quarter. All of this threatens to weaken 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.
In addition, efforts to reduce the EU budget deficit have so far been unsuccessful and have only increased political instability. The problem is that governments are focused on short-term goals at the expense of long-term ones, while demographic problems and the migration crisis are putting further pressure on public finances. Social security and health care costs are rising, while the job market is shrinking. In particular, a significant amount of the budget is being spent on military spending and the green transition.
