European debt levels continue to rise.

Debt levels continue to rise, with eurozone data showing the fiscal deficit at 2.9% of GDP, slightly below the 2024 forecast of 3%, while debt stands at 87.8% of GDP, slightly higher than last year. Across the European Union as a whole, the fiscal deficit is 3.1% of GDP, with debt at 81.7% of GDP.

Eleven countries have fiscal deficits exceeding 3%, with Romania, Poland, Belgium, and France recording the largest deficits. Cyprus, Denmark, Ireland, Greece, and Portugal maintain fiscal surpluses. In terms of debt, Estonia, Luxembourg, Denmark, and Bulgaria have the highest levels, while Greece, Italy, France, and Belgium rank at the bottom.

Projections for 2026 indicate that fiscal deficits will widen further due to increased defense and energy spending. The strain on public finances stems from years of crises, structural weaknesses, and political missteps. The global financial crisis of 2008-2009 was followed by the debt crisis of 2010, the pandemic of 2019, and the energy crisis of 2022 triggered by Russia’s invasion of Ukraine. Governments poured substantial funds into supporting society during each crisis, placing immense pressure on public finances.

Europe also faces an aging population, which consumes significant resources for welfare, pensions, and healthcare. Meanwhile, sluggish economic growth makes it difficult to reduce debt, while the extremely low interest rates before the pandemic encouraged some countries to borrow heavily. The relaxation of the Stability and Growth Pact during crises, and even its violation in many cases, has also contributed to Europe’s current difficulties. Political decisions involving the nationalization of private bank debt have further burdened state finances.

Addressing this issue requires a balanced approach focused on growth, fiscal discipline, and reforms. Cutting recurring and inefficient spending yielded significant results not long ago. The primary goal remains achieving robust growth sufficient to increase fiscal revenues. Under the new fiscal framework, every medium-term development plan must include savings measures aimed at gradually reducing debt.

European economies need growth that does not rely on borrowing. Achieving this requires reforms in labor markets, trade, and investment. Through careful planning and preparation, productivity can be improved and sustainable growth supported in the medium term. This also necessitates investment in infrastructure, green development, and innovation.

Broadening the tax base and strengthening tax collection mechanisms can increase fiscal revenues, while consumption needs to shift toward productive sectors, and credit growth should be restrained as much as possible.

The Cypriot economy, after accounting for social insurance contributions, remains among the surplus countries. Although the surplus trend has weakened, the overall economic situation remains satisfactory due to low public debt. The main issues facing the Cypriot economy are inflexible spending, insufficient investment, and inadequate reforms. The Recovery and Resilience Fund, which could have provided a partial solution, ultimately was not fully utilized.