1. PUBLIC DEBT DYNAMICS IN THE EU Andrea Montanino European Commission Directorate General Economic and Financial Affairs, Public Finances with particular reference to the euro zone

2. EU FISCAL RULES IN BRIEF Deficit ceiling3% of GDP Maastricht Treaty What?How much? Where? Debt ceiling/target 60% of GDP Maastricht Treaty Deficit target Close to balance Stability and Growth Pact

3. DEBT DYNAMIC IN EU (Right axis)

4. IS DEBT CRITERION STRINGENT ENOUGH?, [1] [2] [3] [4]

5. THE IMPACT OF STOCK-FLOWS OPERATIONS

6. ENSURE DEBT REDUCTION [5] [6]

7. WHY REDUCING DEBT NOW IS IMPORTANT: THE ISSUE OF LONG TERM SUSTAINABILITY OF PUBLIC FINANCES

8. THE SGP AND THE REPAYING OF THE DEBT

9. SUSTAINABILITY INDICATORS Extrapolation of debt levels up to 2050 based: –targets for budget balance in 2007 as set down in stability and convergence programmes –constant tax burden and non-age related primary expenditures at 2007 level –projected increase in age-related spending based on Economic Policy Committe or national projections

10. AGE-RELATED EXPENDITURE PROJECTIONS IN EU COUNTRIES Source: Economic policy Committee (2003): it includes pensions, health care, education and unemployment benefits

11. AN AGGREGATE PICTURE

12. TO SUM UP  Rational for EU fiscal rules and in particular for the Stability and Growth Pact can be found in long term challenges.  Long term sustainability is not ensured in EU countries and the risk of repaying the debt is more theoretical than real. The 3% ceiling is not sufficient to ensure sustaianbility in the long term  Debt raises concern: It is increasing in some countries It does not reduce at a satisfactory pace in some of the high debt countries  More focus on debt and long term sustainability is needed in the EU framework

13. USEFUL REFERENCES Public Finances in EMU – 2003 http://europa.eu.int/comm/economy_finance/publications/publicfinance_ en.htm Economic Policy Commitee long term projections and methodological references http://europa.eu.int/comm/economy_finance/epc/epc_ageing_en.htm National Stability and Convergence Programmes and Commission assessements http://europa.eu.int/comm/economy_finance/about/activities/sgp/year/ye ar20032004_en.htm