Euroviews. Some debts are necessary to make Europe stronger

As EU financial ministers and Members of the European Parliament engage in heated discussions on reforming the European fiscal rules ahead of next year’s election, crucial questions emerge. 

How concerned should we be about European public debt? Would investors be willing to support EU public investment? The answers are pivotal in deciding between curtailing spending or boosting investment.

There is a huge funding gap in Europe — each year until 2030, we need €520 billion to meet our environmental and energy objectives, €125bn for our digital priorities, €142bn for social infrastructure such as hospitals and schools, and up to €190bn to maintain other public infrastructure, including roads, buildings, bridges and ports. 

This funding gap is hurting our competitiveness, and it’s jeopardising the well-being of future generations.

Recognising the public good nature of many of these investments, a substantial portion must be funded through public budgets. 

Whilst reprioritising public spending and improving taxation play a role, debt financing is vital to distribute the cost across generations benefiting from these investments.

Failure to account for this reality in the review of Europe’s fiscal rules would be shortsighted, especially in light of recent developments in Germany.

To balance fiscal discipline with rising energy costs and investment needs, Germany established extrabudgetary funds amounting to 9% of its GDP — the so-called Sondervermögen.

However, on 15 November, the German constitutional court deemed the government's 2022 decision to reallocate €60bn of unspent COVID-19 crisis debt to a new climate fund to be used in subsequent years as unlawful.

This ruling exposed the limit of such practices and resulted in a freeze on