European Commission: Ensuring sound public finances - Fiscal Sustainability Report 2012

18 December 2012

The 2012 Fiscal Sustainability Report analyses the sustainability of public finances in the Member States, against the background of the impact of the financial, economic and fiscal crisis and the demographic ageing projected in the 2012 Ageing Report. (Includes link to VP Rehn speech.)

Analysing prospective government debt developments and risks to fiscal sustainability is crucial at the current juncture for euro area countries and the EU as a whole to be able to formulate appropriate policy responses and restore credibility and confidence. High levels of public debt and/or significant budget deficits need to be addressed resolutely and promptly to ensure the stability of public finances. Failing to do so might prompt strong and sudden policy adjustments at some point.

The report provides a comprehensive analysis of the sustainability of public finances across the EU by providing and analysing quantitative results on sustainability indicators and debt projections, as well as other factors relevant to sustainability. It includes an assessment of the sustainability challenges in each EU Member State, in light of the quantitative and qualitative analysis. Finally, a statistical annex gives a country-by-country overview of the main relevant results.

Which key challenges does the Fiscal Sustainability Report 2012 identify?

The deterioration in fiscal positions and increases in government debt since 2008, together with the projected demographic transition due to an ageing population, compound each other and make fiscal sustainability an acute policy challenge. Analysing risks to fiscal sustainability is therefore crucial at the current juncture. Both euro area countries and the EU as a whole must be able to formulate appropriate policy responses and restore credibility and confidence. As developments in the recent past have confirmed, fiscal sustainability challenges are not only of a longer-term nature: in particular, the sovereign debt crisis has led to some Member States facing difficulties in accessing the market. The report therefore describes a multi-dimensional approach for assessing fiscal sustainability, based on short-, medium- and long-term challenges:

In the very long term, fiscal sustainability challenges influenced by population ageing remain significant in most countries, as illustrated by the S2 indicator. This reveals that additional policy adjustment is necessary. Several Member States have reformed their pension systems and set them on a more sustainable footing, a process that needs to be set in motion in all countries.

Are country-specific challenges detailed?

The report provides extensive country-specific analysis of fiscal sustainability challenges. It addresses all Member States except for those under a full economic adjustment programme, since their fiscal sustainability is assessed in detail in that context. The fiscal sustainability risks are not the same for every country. Risks in some countries are primarily of a short- to medium-term nature, while for others they are of a long-term nature, reflecting a need to address long-term age-related public spending trends, notably on pensions, healthcare and long-term care. The appropriate combination of policies will depend on the main reasons behind the sustainability challenges the different Member States are facing.

Press release

Fiscal Sustainability Report 2012

VP Rehn speech: Current Account Surpluses in the EU and the 2012 Fiscal Sustainability Report: - Rebalancing for Sustainable Growth


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