IMF says EU must reform - "Use common debt to meet spending needs"
European Union countries will face huge bills for defense, energy and pensions in the next 15 years, the International Monetary Fund said, suggesting a combination of reforms, consolidation and joint borrowing as a way to manage this.
"If left unchecked, public debt will be on an unsustainable path. With unchanged policies, the debt of an average European country would reach 130 percent of GDP by 2040, doubling," the IMF said in a document.
To prevent such a scenario, EU countries should improve incentives for citizens to move across the 27-nation bloc to find work and for companies to hire them, the document said. “The EU should also integrate its energy markets, make it easier for citizens’ savings to flow into profitable investments across the bloc, and unify laws that now often differ from country to country,” the document said.
Pension reforms and a higher retirement age would also help, as would government guarantees for riskier investments in low-carbon and climate-resilient projects, which would help attract private capital to them.
Finally, according to the IMF, governments should agree that innovation, energy, and defense are European public goods and should be paid for through joint borrowing.
Joint debt is a highly controversial issue in the EU, with some countries like Spain, Italy or France in favor, but others, like Germany and some Northern European countries, strongly opposing the idea.
According to the IMF, even with reforms, most EU countries would still need fiscal consolidation to put debt on a downward path, although the more ambitious the reforms, the less consolidation would be needed. If governments did not act now, the problem would only get worse.
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