European Central Bank President Christine Lagarde called on euro zone countries to better combine debt reduction and productive investment, while warning of the risk of a crisis. “budget stagnation”. “Public debt levels in the Eurozone remain high and must fall”he said during a speech in Vienna, Austria, at a time when France appears to be having great difficulty in getting a budget in 2026.
According to him, the main challenge “This does not mean that the government in general does not respect budget regulations”but they have to do it “put greater emphasis on spending that supports growth potential and key strategic priorities, while consolidating public finances”.
Currently, only a handful of countries in the eurozone, including France and Italy, are exploiting the possibility, offered by European texts, to extend the budget adjustment period to seven years on condition of investing in structural reforms and projects that strengthen productivity, according to the central banker.
Maintain the social model
The more frequent priority given to current expenditure is explained by “pressure to preserve the European social model and support aging societies in the short term”he stressed. Conversely, a lack of investment can cause “budget stagnation”when consolidation measures weaken growth, requiring more fiscal austerity, a “vicious circle” according to a former IMF director.
To avoid this trap, we should make better use of the flexibility of European tax rules by shifting spending to education, research and productive investment. Another way suggested by Christine Lagarde: pooling specific strategic spending at European level, particularly in research and development, encouraging innovation, and defence, to “prevent hostile actors”.
A recent example comes from plans launched by the European Commission to mobilize 150 billion euros in the EU for pan-European capabilities such as air defense, artillery and anti-drone systems.
Finally, it’s about“using European budgetary instruments to mobilize private capital” is needed to fund efforts in the climate, digital and defense sectors, with needs expected to reach more than 1,200 billion euros per year by 2031.
