Opinion
By Yiannos Stavrinides
EU member states continue to face persistent problems in managing public finances, keeping debt levels on an upward path. Data from the Eurozone show a deficit of 2.9% of GDP, slightly lower than the 3% recorded in 2024, while debt stands at 87.8% of GDP, slightly higher than last year. Across the European Union overall, the deficit stands at 3.1% and debt at 81.7%.
Eleven countries are running deficits above 3%, with Romania, Poland, Belgium and France posting the weakest figures. Cyprus, Denmark, Ireland, Greece and Portugal remain among the surplus countries. In terms of debt, Estonia, Luxembourg, Denmark and Bulgaria report the strongest indicators, while Greece, Italy, France and Belgium remain at the bottom of the list.
Forecasts for 2026 point to higher deficits because of increased spending on defense and energy. The difficult state of public finances stems from years of crises, structural weaknesses and political decisions. The global financial crisis of 2008-2009 was followed by the debt crisis of 2010, the pandemic in 2019 and the energy shock of 2022 caused by Russia’s invasion of Ukraine. Governments spent enormous sums supporting their societies through each crisis, leaving public finances under severe pressure.
Europe is also dealing with an aging population that consumes large amounts of funding for welfare, pensions and healthcare. At the same time, weak growth rates make it difficult to reduce debt, while the extremely low interest rates of the pre-pandemic years encouraged some countries to borrow heavily. The relaxation, and in many cases violation, of the Stability Pact during periods of crisis also contributed to the situation Europe now faces. Political decisions involving the nationalization of private banking debt placed an additional burden on state finances.
Addressing the problem will require a balanced approach focused on growth, fiscal discipline and reform. It has not been long since cuts to current and less productive spending produced impressive results. The main goal remains growth strong enough to increase revenues. Under the new fiscal framework, every medium-term development initiative must also include savings measures aimed at gradually reducing debt.
European economies need to grow without depending on borrowing. Achieving that goal will require reforms in labor markets, trade and investment. With careful planning and preparation, productivity can improve and support sustainable growth over the medium term. That will also require investment in infrastructure, green development and innovation.
Expanding the tax base and strengthening collection mechanisms could increase revenues, while consumption would need to shift toward productive sectors and credit growth would need to be limited wherever possible.
The Cypriot economy, when social insurance contributions are included, remains among the surplus countries. Although surplus trends have weakened, the overall picture remains satisfactory because of lower public debt. The main problems facing the Cypriot economy are the growth of inflexible spending, underinvestment and weak reform efforts. The Recovery and Resilience Fund, which could have provided part of the answer, ultimately remained underused.
