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Aging population, defense spending and climate change, ECB warns highly indebted countries

2024-06-21 13:52:21Biznes SHKRUAR NGA REDAKSIA VOX

Aging population, defense spending and climate change, ECB warns highly indebted

Eurozone members must start reducing their debt immediately in the face of major long-term fiscal risks stemming from aging populations, defense spending and climate change. The warning is issued by the European Central Bank.

According to the report, these developments are challenges and countries will face them all at the same time. That's why action needs to be taken today – especially in highly indebted countries struggling with rising interest rates. According to the ECB, the fiscal efforts needed to address specific challenges could amount to at least 5% of GDP. The necessary fiscal adjustment is large based on historical data, but not without precedent.

The warning comes at a time of heightened concern about the sustainability of public finances in the 20-nation zone - and not just in France, where the call for early elections has fueled concerns about fiscal consolidation and troubled markets. The ECB points out that in addition to existing fiscal issues, which are often reflected in high debt ratios, further challenges will lead to significant fiscal burdens in the coming decades. Digitization is among them.

Governments would need to immediately and permanently increase primary production by 2% of GDP on average to achieve a public debt-to-GDP ratio of 60% by 2070 from current debt levels, the ECB added.

Moreover, population aging, defense spending and climate change could widen the average deficit by around 3% of GDP. Digitization is excluded from the calculation because of the particular uncertainty surrounding its effects.


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