Drafts of the 2025 budgets for Eurozone countries, to be prepared under the new debt and deficit rules agreed last February, are expected to be slightly contractionary. This stance is considered appropriate in light of current macroeconomic prospects, the need to strengthen fiscal sustainability, and the ongoing process of disinflation, while fiscal policy should remain agile given prevailing uncertainty, according to a statement agreed this Monday by the euro area ministers of economy and finance.
Governments have until October 15 to submit their budget plans to the European Commission, and these plans must be built within the new fiscal architecture. The budgets will require adjustments and restraint in public spending. Specifically, states with debt above 60 percent or a deficit above 3 percent of GDP will need to implement differentiated, risk-based fiscal adjustments, while it remains crucial that the necessary fiscal consolidation does not curb investment. This warning came from Paolo Gentiloni, the EU Commissioner for Economic Affairs, who urged not to repeat mistakes from a decade ago and to leverage Next Generation EU funds.
Pierre Gramegna, managing director of the European Stability Mechanism and former Luxembourg finance minister, added that many member states with high debt levels will have to undertake additional efforts to reduce deficits and implement safeguards to absorb unexpected shocks. He stressed the importance of reducing low-productivity spending, such as energy support measures, but warned against cutting public investments. Gramegna noted that progress hinges on avoiding reductions in public investment, as that would hinder European competitiveness.
Before sending the budget draft, governments must also forward to Brussels by September 20 their four-year fiscal path, extendable to seven years if they commit to reforms and investments aligned with growth goals tied to green transition, digitalization, and defense. According to Gentiloni, the schedule is highly tight and represents a real challenge that will require summer work.
In its declaration, eurozone countries commit to intensifying efforts to improve the efficiency, quality, and composition of public spending and, as announced in December, to gradually remove remaining energy support measures as quickly as possible during 2024. The savings will be directed toward reducing the public deficit, the declaration confirms, and these commitments will be taken into account when preparing mid-term fiscal plans and the forthcoming budget.
European capital markets have also been a focus. Eurozone members reached an agreement on the need for a more integrated European capital market, deemed essential for advancing the single market, attracting investment, and boosting the EU’s global competitiveness, innovation, sustainable growth, and jobs, especially at a moment when Europe risks falling behind globally.
There is a strong call to turn European capital markets into globally competitive ones. The EU requires a capital market that can channel national savings and foreign capital efficiently toward innovative companies, enabling them to become engines of long-term growth and helping the EU become a world leader in innovation and new industries.
In sum, the eurogroup stresses that a unified and robust approach to budgets and capital markets is key to supporting sustainable growth and resilience across the euro area in the coming years, with careful attention to maintaining or increasing productive public investment while pursuing fiscal consolidation where needed.