Europe is at the beginning of a new phase of financial instability, strongly reminiscent of the crisis years of the past decade. In a recent report entitled
"How can Europe pay for things it can't afford?", the International Monetary Fund (IMF) strikes a clear tone: Without coordinated and decisive steps, Europe risks slipping into an era of growing public debt, stagnant economy and political shocks.

The IMF is not sparing with clear words. In fact, he is calling on highly indebted EU states to implement reform programs that are strongly reminiscent of the well-known "memoranda" of the 2010 debt crisis: far-reaching structural adjustments, combined with strict fiscal discipline. The forecasts are alarming. According to the IMF, European countries will be increasingly burdened in the coming decades – by higher spending on health systems, pension structures, defence and measures against climate change.

According to the Fund's calculations, these additional requirements are expected to increase public spending in Europe's advanced economies by an average of 4.5 percentage points of GDP by 2040. In Central, Eastern and Southeastern Europe – including Greece – an increase of around 5.5 percentage points is even expected. Without countermeasures, the debt path is "not sustainable": the average debt ratio could climb to 130% of GDP by 2040. If this ratio is weighted according to economic power, the figure is as high as 155%, as large economies such as France and Italy are already heavily indebted.

The situation could deteriorate further if high debt additionally dampens economic growth and increases financing costs. The IMF points out that rising debt usually leads to falling growth: every 10 percentage point increase in the debt ratio depresses annual GDP growth by 0.05 to 0.2 points. From a debt of over 75% of GDP, this negative effect intensifies. In this scenario, average growth in Europe could fall to around 1.5% by 2040 – a level that is barely enough to finance welfare systems in the long term.

Europe is thus in danger of falling into a cycle that economists today call "degrowth": high debt, weak growth, rising interest rates – and finally new austerity programs. According to the IMF, debt has long since ceased to be just an economic problem, but also a social one: it leads to uncertainty, burdens younger generations and curtails the ability of states to invest in future projects.

counter this development, the IMF proposes a strategy based on three key areas:

These include greater market opening, more efficient governance structures, deepening the EU's single market, and adapting pension systems to reduce the costs of an ageing population. limit.

The IMF explicitly mentions tax reforms, improved tax collection and a clear prioritization of government spending – even if this could in fact mean higher taxes or lower benefits.

particularly burdened countries, the IMF even considers cuts or partial privatizations of social services possible – a recommendation that is strongly reminiscent of measures taken during the euro crisis.

The IMF's proposals are clearly reminiscent of the time of the bailout packages, when Greece, Portugal and Ireland had to accept harsh austerity conditions. This time, however, the risk affects the whole of Europe – including economic heavyweights. Even Germany and France are increasingly losing fiscal room for manoeuvre because inflation, energy costs and defence spending are putting pressure on budgets.

Europe is thus once again at a fork in the road. A strict austerity course could reduce debt, but at the same time exacerbate social tensions. An alternative strategy – joint European investment programmes, more solidarity and long-term growth initiatives – would be more politically demanding and require coordination, which has often been lacking in the past.

The coming decade will be decisive for Europe's social and economic course. An ageing population, energy restructuring and geopolitical pressure require enormous investments. If these are mainly financed by debt, the downward spiral deepens. If, on the other hand, they are financed by new taxes or cuts, there is a risk of social fatigue.

The IMF remains true to its traditional line and is once again calling for austerity measures and reforms. But Europe needs more than a repeat of the past: it needs a model that combines financial

stability, social justice and ecological growth.

Otherwise, the "Europe of shrinking" will become a Europe of disillusionment.



Author: MF-Redaktion
Source: pafoslive.com.cy