Sustainability of public finances

Latest update 23/10/2009.

This Communication and its companion Sustainability Report 2009 assess the sustainability of public finances in the EU Member States. It is an update of the communication and report of 2006, following the request of the ECOFIN Council of November 2006, which asked the Commission to prepare a new sustainability report when new common age-related expenditure projections become available in 2009.

The Communication is issued in the context of the reflection on strategies to exit from the economic and financial crisis and on the convergent and coordinated framework for the reform of Europe's economies at the core of the strategy for Europe 2020.

>> Communication COM(2009) 545. Long-term sustainability of public finances for a recovering economy (64 kB)  
>> Sustainability report 2009 (5 MB)   (revised)

The financial and economic crisis and its impact on public finances

The report takes into account the context of the financial and economic crisis and its impact on public finances at the moment when the first signs of stabilisation become apparent. As long as the recovery is not sustained and the discretionary measures deployed by governments are not withdrawn, the effect of the crisis on public finances cannot be fully determined.

However, given the large impact of the crisis on public debt, this communication provides a timely input at a stage where, in line with the European Council position ‘fiscal policies must progressively be reoriented towards sustainability’ and ‘exit strategies need to be designed now and implemented in a coordinated manner as soon as the recovery takes hold, taking into account the specific situation of individual countries’.

Fiscal sustainability and medium-term budgetary needs

The regular assessment of fiscal sustainability is in line with the reformed Stability and Growth Pact (SGP), according to which long-term issues should get a prominent role in surveillance.

Recently, Member States have agreed detailed principles on the revision of the medium-term budgetary objectives (MTO) in order to ensure that the Member States’ budgetary strategies reflect real medium-term needs, by taking account not just of debt levels but also implicit liabilities, notably costs related to ageing populations, in particular projected health care and pension expenditure.