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4d ago

IMF Warns EU Debt Could Hit 130% of GDP by 2040 and Urges Reforms and Joint Borrowing

Ministers in Nicosia held a first debate but made no collective commitments, leaving political splits over shared debt as the key obstacle.

European Union flags flutter outside the EU Commission headquarters, on the day farmers protest against proposed cuts to Common Agricultural Policy (CAP) funding and the European Commission's plan to merge agricultural and cohesion policies, in Brussels, Belgium July 16, 2025. REUTERS/Yves Herman/File Photo
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Overview

  • The International Monetary Fund presented a paper on Saturday, May 23, 2026, saying that under current policies the average EU country's public debt would reach about 130% of GDP by 2040 and calling that path unsustainable.
  • The Fund identified three major long-term spending pressures—defence, the energy transition, and ageing-related pensions—that together drive the projected rise in debt.
  • To avert the outcome, the IMF recommended a package of measures that includes structural reforms to boost labour mobility and energy-market integration, pension changes to limit costs, and fiscal consolidation to put debt on a declining path.
  • The paper also proposed joint EU borrowing and guarantees to fund shared projects such as innovation, defence and low-carbon investment, but that idea is politically divisive across member states and was not agreed in Nicosia.
  • If governments delay coordinated action, the IMF and EU auditors warn that small, piecemeal fixes will be inadequate and that voters could face higher taxes, cuts to services, or constrained public investment in coming years.