IMF warns Europe: unsustainable debt without growth. Overcome unanimity vote

"One year after the Draghi and Letta reports, the gap between what needs to be done and what has been done remains wide," emphasises the director of the Europe department, Alfred Kammer. The Fund estimates that internal trade barriers equate to ad valorem costs of 44% for goods and 110% for services. To offset the effects of US tariffs, it would be enough to "lower those fences by 1.25%" or reduce those with the rest of the world by 3.5%.

The President of the ECB, Christine Lagarde, recently stated that an increase in internal trade within the Eurozone of 'just 2% would be enough to compensate for the loss of exports to the US due to tariffs'.

The Fund also suggests a reform of the EU budget, to make it more favourable to investment in public goods and to align EU priorities with national reforms. And it reiterates its call for the issuing of EU debt, "as a regular financing instrument, backed by more own resources". Resources could thus increase, "without overburdening national contributions".

"Without growth-oriented reforms, without budgetary consolidation", spending pressures would bring the debt "of an average European country to 130 per cent of GDP by 2040, or 155 per cent on a GDP-weighted average basis", double the current level: "debt sustainability would thus be jeopardised".

In a framework of "moderate" reforms, the Fund writes, "an average European country would need an improvement in the cyclically-adjusted primary balance of just over 3.5 per cent of GDP over the next five years. But for countries with already high debt levels (such as Italy), a consolidation of more than 5 per cent would be needed to put themselves on a sustainable debt trajectory.

In the past few days, both Georgieva and the head of the Fiscal Policy Department, Vitor Gaspar, have renewed their call for Italy and France to make an extra effort to lower the ratio of government debt to GDP. The Fund predicts that Italy will rise to 138% of GDP 2026, falling to 137% in 2030. For France, continued growth is estimated to almost 130% of GDP in 2030.

According to the Monetary Fund, promoting national reforms and deepening the EU single market could increase output by around 9 per cent over 10 years. Furthermore, a limited set of reforms (regulatory harmonisation, capital market union, labour mobility, electricity market integration) can increase GDP by at least 3 per cent.

With regard to public accounts, Italy achieved "impressive" results last year and better-than-expected deficit figures are also on the horizon for 2025: "This is fantastic," said Helge Berger, deputy head of the Fund's Europe department, at a press conference. For this year, "we are forecasting a deficit at 3.3% of GDP, according to the Italian government it will be 3%. When we update our forecasts we will take this into account," he added. The IMF outlook does not yet take the manoeuvre into account;