Recently published economic data for the last quarter of 2023 revealed that the combined public debt of the European Union’s 27 member states is now a staggering 13.8 trillion euros, driven by record public spending to tackle multiple back-to-back crises, from the COVID-19 pandemic to the subsequent cost-of-living crisis. Longstanding concerns in Brussels over the increasingly unsustainable levels of debt across the bloc prompted EU leaders to embark on a major reform of the bloc’s fiscal rules on debt and deficits, which came into effect earlier this year.
Preoccupation with debt dates back to the European debt crisis of the early to mid-2010s, when several member states—the so-called PIIGS countries of Portugal, Italy, Ireland, Greece and Spain—struggled to repay or refinance their massive public debt. The bloc’s subsequent multiple bailouts for Greece jeopardized the survival of the euro in what became the biggest existential crisis in the EU’s history. Though the EU’s Stability and Growth Pact, adopted in 2005, had in theory capped budget deficits at 3 percent and overall debt at 60 percent of GDP, in practice sovereign debt levels had skyrocketed across the bloc, peaking at about 87 percent of GDP in 2014 and 2015. In 2013, the EU tightened enforcement measures with the European Fiscal Pact, which helped bring combined debt down to 78 percent of GDP by 2019.
The effects of the pandemic, which saw large parts of the EU economy shuttered for prolonged periods, sent debt soaring once again, as Brussels suspended enforcement mechanisms for its fiscal rules. After reaching a record high of almost 88 percent of GDP in 2020, EU debt fell slightly as the crisis receded. It now stands at about 82 percent of GDP, with 13 of the 27 member states in violation of the bloc’s 60 percent cap on debt-to-GDP ratio, and several countries—including Italy, France, Spain and Greece—posting ratios well in excess of 100 percent.