AIReF Leaders Highlight Debt Costs and Strategic Fiscal Planning
The AIReF president, Cristina Herrero, spoke at a session on sustainability and digitalization as levers of recovery. She emphasized that the report already shows a substantial rise in debt service costs, noting an increase of tens of billions within the 2022-2025 period. The discussion reflected how such costs accumulate even as economic conditions improve in some areas.
Herrero warned that the financial burden could climb further, with estimates suggesting an additional tens of billions in funding costs depending on the strength of the European Central Bank’s anti-fragmentation measures and ongoing review of interest rate policies. The overall projection hinges on how robust the ECB’s actions prove to be and on any recalibration of rates as markets respond.
The estimate rests on the expectation that the implicit debt ratio could rise by about three tenths of a percentage point, reaching roughly 2.3%, while the fiscal burden to GDP could climb by around four tenths of a point, reaching about 2.4%. Herrero underscored that inflation, while easing some immediate pressures, creates a midterm drag by elevating financial costs as inflation dynamics interact with wage and pension commitments. Each additional percentage point of inflation can translate into billions in increased costs for pensions and interest expenses, especially amid a volatile international context and fluid fiscal rules.
In her assessment, the structural deficit appears to have widened by roughly half a percentage point compared with pre-crisis levels. She called for a clear medium‑term fiscal strategy, stressing that the current environment should not introduce more uncertainty for public administrations. The aim is to keep debt trajectories on a sustainable path while supporting growth and social protection programs.
To safeguard debt sustainability, Herrero outlined that the primary balance would need to be trimmed by about a tenth of GDP over a specified horizon, with stabilization around the 80% debt-to-GDP level and an annual improvement in the primary balance of roughly 0.35 percentage points. These targets would help anchor fiscal resilience and reduce exposure to external shocks.
Regarding Europe’s stance, the European Commission’s recommendation to avoid letting current spending outpace potential growth was cited. If such guidelines were pursued in 2023, the public deficit could fall below 3% of GDP in that year. AIReF’s projections suggest that following the recommendation could close the output gap by approximately 2.7% of GDP in 2023, which would be lower than both AIReF’s own estimate of 3.3% and government projections around 3.9%.
Overall, the dialogue highlighted the delicate balance between sustaining essential public services, controlling debt costs, and maintaining room for fiscal maneuver in an uncertain global climate. Herrero’s commentary underscored the need for disciplined budgeting, prudent risk management, and continuous assessment of monetary policy effectiveness as the economy navigates post-pandemic adjustments and new inflation dynamics. The emphasis remained on transparent, medium-term fiscal planning as the foundation for a stable financial outlook and credible debt management strategy for the coming years.