A Green Fiscal Pact for a resilient recovery: increasing green investment while consolidating
budgets
Zsolt Darvas and Guntram Wolff1
Bruegel
30 August 2021

Paper prepared for the informal ECOFIN meeting in Ljubljana on 10/11 September 2021
Abstract
The additional public investment need required to meet the European Union’s climate goals is between
0.5% and 1% of GDP annually during this decade. Our simulations show that budget consolidation can
be done at a moderate pace under a flexible interpretation of the EU rules after their re-instatement
from 2023. Still, past consolidation episodes resulted in major public investment cuts, while now there
is a need for a major increase in investment. A ‘green golden rule’ (excluding net green investment
from the fiscal indicators used to measure fiscal rule compliance) is the most promising option to
address this tension. Relaxing the strictness of the EU fiscal framework beyond its existing flexibility
and the proposed green golden rule does not appear necessary in the next years. The uncertain growth
impact of green public spending and the risks to growth from climate change create difficult trade-offs
in fiscally weaker countries. In any case, better regulatory policy and a higher price on emissions should
incentivise private green investment and reduce public costs. These ingredients should be combined to
form a ‘Green Fiscal Pact’.

1. Introduction
The European Union economy is gradually exiting its biggest recession since the Second World War.
After a drop in GDP of 6.0% in 2020, the growth rate is forecast to be 4.8% in 2021 and another 4.5%
in 20222. These estimates continue to be fraught with considerable uncertainty. One important factor
of uncertainty will be the further development of the pandemic, for example the emergence and
impact of new coronavirus variants. Further uncertainty arises from global supply chain disruption.
Substantial fiscal resources were rightly used to buffer the impact on the economy of the pandemic
and public health measures, and debt levels have increased substantially. The EU fiscal deficit
increased from 0.5% of GDP in 2019 to 7.5% in 2021 (Figure 1). Public guarantees for loans increased
by 5%-10% of GDP in some countries in 2020 (Anderson et al, 2021). Public debt to GDP has increased
from 79% of GDP in 2019 to 94% in 2021 (Figure 2). In some countries, public debt is substantially
higher.

1

We thank Klaas Lenaerts for his excellent research assistance and colleagues at Bruegel for their feedback and
suggestions.
2
According to the European Commission’s Summer 2021 Economic Forecast.

1

Sweden

Slovakia

Finland

Romania

Slovenia

Poland

Portugal

Netherlands

Austria

Hungary

Malta

Lithuania

Luxembourg

Cyprus

Latvia

Croatia

Italy

Spain

France

Ireland

Greece

Germany

Estonia

Czechia

Denmark

Belgium

Bulgaria

EU27

Euro Area

Figure 1: General government balance as % of GDP in 2021

0

-2

-4

-6

-8

-10

-12

-14

Source: Bruegel based on European Commission Spring 2021 Forecast.

Figure 2: General government gross debt as % of GDP, 2019-2021
250

200

150

100

50

Belgium
Bulgaria
Czechia
Denmark
Germany
Estonia
Ireland
Greece
Spain
France
Croatia
Italy
Cyprus
Latvia
Lithuania
Luxembourg
Hungary
Malta
Netherlands
Austria
Poland
Portugal
Romania
Slovenia
Slovakia
Finland
Sweden

EU27
Euro Area

0

2019

Projected increase to 2021

Source: Bruegel based on European Commission Spring 2021 Forecast.

As the economy recovers, the fiscal exit strategy from this substantial support will be of paramount
importance. In a previous note to the informal ECOFIN, we warned against a premature fiscal exit
(Claeys et al, 2021). We have also discussed the importance of a gradual shift from firm-specific fiscal
support towards broader demand support in order to facilitate the adjustment of economic structures

2

towards a new steady state after the acute phase of the pandemic. The design and the speed of the
fiscal consolidation will have major ramifications for the recovery.
The fiscal exit strategy needs to be put in place when the EU is pursuing the major and justified goal
of cutting its greenhouse gas emissions. Achieving the targets of the European Green Deal and the
‘Fit for 55’ package will require substantial additional investment and major regulatory and tax
measures. And while the EU’s share of global emissions is modest, EU investment also advances
climate mitigation technology, which contributes to global reductions3. These investments will have
to be funded and we discuss how this will complicate fiscal policy trade-offs in this decade.
The EU’s fiscal rules are under discussion, but this paper does not discuss EU fiscal-rule revision in
general. A substantial literature exists on this and there is fairly broad consensus that the current rules
face technical problems (related to the definition and measurement of potential output and structural
balances), do not take account of cross-border demand externalities and the interplay between
monetary and fiscal policies, and fall short on implementation. It has even been argued that existing
fiscal rules lack economic justification and should be discontinued. At interest rates lower than growth
rates, fiscal sustainability is less of a concern4. But there is uncertainty about the effect of climate
change on both growth and interest rates, and therefore on sustainability. Beyond the academic
debate, the European Parliament, in an 8 July 2021 resolution5, stressed “the importance of having a
clear pathway towards a reviewed fiscal framework, preferably prior to the deactivation of the general
escape clause,” and highlighted that “the application of the current fiscal framework, in particular the
adjustment paths, would lead to a high speed of debt reduction that could undermine the recovery
path of the economies”.
In previous work (Claeys et al, 2016; Darvas et al, 2018), some of us argued for reform of the fiscal
rules. Approaches close to these proposals are now advocated by, for example, the European Fiscal
Board. The proposals focus on country-specific medium-term debt targets as an anchor and an
expenditure rule as the operational target, thereby allowing a debt feedback mechanism. A resilient
framework requires operational targets that reduce debt ratios prior to any financial market doubts
about debt sustainability. Lower debt ratios increase the robustness of the system and the capacity
of the state to react to new negative shocks, as has been shown during the pandemic, with countries
with relatively low debt levels able to initially react more vigorously with fiscal policy than countries
with high debt levels.
Instead of going deeper into the debate about which specific fiscal rule would be optimal, we assess
the scope for public green investment if fiscal rules are reinstated in their current form as of 2023.
We draw lessons from past experiences of fiscal consolidation in terms of the speed and composition
of public spending. We simulate different fiscal-adjustment scenarios under the existing fiscal rules.
3

Tagliapietra and Wolff (2021) argued for a climate club to incentivise more countries beyond the EU to
accelerate their climate efforts in line with increased EU climate efforts.
4
One of the most frequently discussed is from Blanchard et al (2021), under which fiscal rules would be replaced
by fiscal standards – qualitative prescriptions that would be based on a debt sustainability analysis and
adjudicated by an EU-level court. However, we reject the idea of discontinuing European fiscal rules in favour of
standards. In a monetary union, the risk of free-riding on monetary support would be substantial and triggering
fiscal adjustments only in reaction to a negative assessment on debt sustainability would, in itself, trigger
negative market reactions undermining debt sustainability. Moreover, debt sustainability analyses often
generate uncertain results and adjustments would come too late if only done once a fiscal position looks
unsustainable with a high probability. We do not discuss here Blanchard et al’s (2021) governance approach,
which is largely outside the EU legal and institutional system and would hardly be implementable.
5
See https://www.europarl.europa.eu/doceo/document/TA-9-2021-0358_EN.html.

3

We summarise estimates of public investment needs in green infrastructure. The overall message is
that there are substantial investment needs that will be very difficult to achieve in the current fiscal
setting. We highlight major political trade-offs and conclude with recommendations.

2. Lessons from previous fiscal consolidations
In the midst of the escalating euro crisis of the early 2010s, fiscal consolidation in the EU was rather
fast. In the current 27 EU members, the structural budget balance as a share of GDP increased by 0.8
percentage points in 2011, 1.5 percentage points in 2012 and 0.8 percentage points in 2013. This rapid
fiscal consolidation was a major driver of the recession of 2012 (Figure 3).

Figure 3: Structural budget balance in the EU (% Figure 4: Gross and net public investment in the EU, %
potential GDP)
GDP, 1971-2022

2019

2015

2011

2007

2003

1999

1995

1991

1971

-6

1987

-4

1983

-2

1979

5
4
3
2
1
0
-1

1975

0

2014 estimate (first 27 members)
2021 estimate (current 27 members)

Source: the May 2014 and the May 2021 AMECO
datasets. Note: the latest May 2021 AMECO includes
estimates and forecasts for 2010-2022, so we include
the May 2014 AMECO which also includes earlier
estimates.

gross, EU27

net, EU27

gross, EU13

net, EU13

Source: Bruegel based on the May 2021 AMECO dataset.
Note: EU13 is the aggregate of the first 15 members of the
EU except the United Kingdom and Luxembourg. The
forecasts for 2021-2022 include the impact of NGEU.

While the magnitude of fiscal consolidation in EU countries differed depending on their fiscal
situation and the market pressure they faced, almost all countries cut public investment. Public
investment was also a victim of fiscal consolidation in previous episodes (Figure 4). Gross public
investment fell by about 0.8 percentage points of GDP from 2009 to 2013 in the EU as a whole. Even
in the group of long-standing EU members that did not face market pressure, the real value of public
investment was slightly lower in 2013 than in 2009, while overall primary expenditures increased by
about 5% in this period (Annex Table A1). Public investment was cut more dramatically, by around
one-half, in Greece, Ireland, Portugal, Italy and Spain – countries that faced heavy market pressure.
Also, in the central and eastern members of the EU, investment was cut substantially during this

4

period. Other more future-oriented spending items were also cut6. Overall, investment has been a
major victim of fiscal consolidations.
3 Green public investment needs to meet EU targets
Achieving the goal of net-zero greenhouse gas emissions in the EU by 2050 requires an immediate
expansion of annual investment in clean and efficient energy use and transport by about 2% of GDP.
The middle scenario in the European Commission’s impact assessment (European Commission, 2020)
estimated additional annual investment needs of €360 billion on average, with annual investment
needing to increase to €1040 billion on average (at 2015 prices), up from €683 billion per year invested
over the last decade, in order to reach the intermediate goal of a 55% emissions reduction by 2030
compared to 19907. Even more investment is needed beyond 2030 (Figure 5)8. As a share of GDP, this
is an increase from 5.3% to 7.0% according to the Commission9. This Commission estimate is in line
with estimates of the International Energy Agency (IEA, 2020) for the world, the International
Renewable Energy Agency (IRENA, 2021), and Bloomberg NEF (2021), which suggest that additional
investment needs in energy and transport amount to roughly 2 percentage points of GDP. D’Aprile et
al (2020) similarly estimated that, on average, €980 billion in capital investment per year is needed in
the EU between 2021 and 2050 to achieve net-zero emissions10.
Figure 5: Average annual green investment needs in the EU (€ billions, 2015 prices)
0

200

400

600

800

1000

Industry

Residential

Tertiary

Transport

1200

Historical (2011-2020)

Baseline (2021-2030)

Mixed 55% (2021-2030)

Mixed 55% (2031-2050)
Power grid

Power plants

Other

Source: Bruegel based on European Commission (2020).
Note: 'Baseline' is a scenario in which current policies and targets for 2030 continue to apply (-40% GHG
emissions). 'Mixed 55%' is a scenario (MIX) that features a combination of expanded carbon pricing and

6

Research and development (R&D) spending also suffered, at least in relative terms (with the exception of newer
EU member states), even though many EU governments spend much less on R&D than other advanced countries.
Spending on education also suffered, except in the EU9. See Table A1 in the Annex.
7
Estimates refer to the MIX scenario as set out in European Commission (2020). Note that the €360 billion is the
annual average over the decade with no precise numbers given on the spending profile during the decade.
8
Note that estimates for 2031-2050 do not assume any particular policy change to reach net zero in 2050, but
assume that policies implemented before will continue their effects beyond 2030.
9
€360 billion is 2.7% of 2019 GDP at 2015 prices. The Commission assumes positive GDP growth during the
decade.
10
McCollum (2018) presented smaller estimates, though for a more restrictive sectoral definition of
investments.

5

moderately increased ambitions in energy regulations to achieve 55% emission cut by 2030. Beyond that, the
estimates for 2031-2050 do not assume any particular policy change to reach net zero in 2050.

A significant part of this additional investment will have to be funded by the public sector with
estimates of a public-private ratio of 1:4 to 1:5. For overall climate-related investments in energy and
transport, the European Investment Bank (2020) gathered data reported by EU countries. This selfreported data showed that governments planned to provide on average around 28% of the necessary
funding for investments in energy and transport in the EU11. If one assumes that the new additional
investments as reported by the Commission were in line with these self-reported estimates of the
public share of funding, an annual additional public investment of €100 billion (at 2015 prices), or 0.8%
of 2019 EU GDP, would result. IRENA’s (2021) 1.5°C scenario estimated a somewhat lower public share
at the global level. Public funding accounted for 22% of the relevant investments in 2019. This share
would decline to 17% beyond 2030, while in absolute terms, public investment would more than
double because of the large growth of overall green investment needs. The EIB (2020) report
emphasised the importance of public funding to mobilise and facilitate private financing. Similarly,
numbers presented by the World Economic Forum (2013) confirmed that public-private leverage
ratios of 1:4 to 1:5 are possible if public funds are used efficiently12.

However, the share of public funding can be reduced by appropriate policy to reduce the costs to
the public pursue. Appropriate government regulation, taxation policy and, in particular, a higher
carbon price should make green investments more profitable for the private sector. The percentage
of public funding therefore depends on the willingness of the public sector to tax emissions.
Nevertheless, some public spending cannot be done by the private sector because of market failures.
It is also crucial to remove distortions in the taxation and subsidisation of the energy system in order
to incentivise more private investment. For example, currently there is a substantially larger (average)
tax on electricity consumption (both for the industrial sector and the household sector) than on
natural gas consumption (Figure 6). Although experts agree that the greening of the energy system
involves its electrification, current tax policy is actually slowing down that transformation13.
Substantial subsidies for fossil-fuel consumption also remain, distorting incentives.

11

This data was gathered from the National Energy and Climate Plans, which member states had to submit by
the end of 2019. While written under the assumption of outdated climate targets, the estimated shares of public
and private funding are still informative. The EIB (2021) reported an unweighted average public share in the EU
of 45%. Our own weighted average puts the share at 28%. The public share is highest in central and eastern
European countries (60%) because of the role of EU funds, while public funding is expected to play a more limited
(though still 20%-30%) role in much of northern and western Europe.
12
The size of the public share of green investment depends on the composition of overall green investment
needs, as one can expect the share to be lower for, for example, transport investment (since it mostly concerns
replacement of private vehicles) than for supply-side investment in grids and power plants. The composition of
investment needs according to the Commission and McKinsey is roughly similar: the transport sector accounts
for the largest share by far, followed by investment in energy efficiency of buildings, and supply-side
investments.
13
See, for example, Figure 2.10 in the IEA (2021) net-zero roadmap, 62, available at:
https://iea.blob.core.windows.net/assets/beceb956-0dcf-4d73-89fe-1310e3046d68/NetZeroby2050ARoadmapfortheGlobalEnergySector_CORR.pdf.

6

Figure 6: Adapt taxation policy: Average energy prices for EU27 households and industry (€ per
KWh), including VAT and other taxes

Natural gas (industry)

Electricity (industry)

Natural Gas (households)

Electricity (households)

0

0.05
Without taxes

0.1

0.15

Other taxes (non-VAT)

0.2

0.25

VAT

Source: Bruegel based on Eurostat’s “Gas prices for non-household consumers [nrg_pc_203]”, “Electricity prices
for non-household consumers [nrg_pc_205]”, “Gas prices for household consumers [nrg_pc_202]” and
“Electricity prices for household consumers [nrg_pc_204]” datasets.
Note: data are from second half of 2020.

Overall, in the course of this decade, to achieve EU climate goals, total green investment in the EU
must be increased by about 2 percentage points of GDP annually, of which public investment will
have to amount to between 0.5% and 1% of GDP. EU countries should tax emissions more so that
investment in climate infrastructure becomes more profitable for the private sector, relieving the
public purse. However, given the public-goods nature of some of the necessary investments and
existing political choices, our best estimate is that public spending will still need to increase by some
€100 billion per year. This is a major fiscal effort that will need to be financed.

4. Fiscal adjustment needs under current rules
It is difficult to compute the precise fiscal adjustment needs – i.e. adjustments in the headline deficit
and the structural balance – under the current EU rules. Major caveats and disagreements must be
taken into account:
•

•

First, what is the right level of potential output? There are good reasons to believe that
potential output could be strengthened by the crisis; however, official EU estimates assume a
lowering of potential output in most EU countries. We take the current official estimates as
given in our simulation, but higher potential output would imply less urgent fiscal
consolidation.
Second, there is substantial scope to interpret the fiscal rules restrictively or rather flexibly.
To accommodate this, we present a scenario in line with the practice of the past decade
7

•

•

•

•
•

(which we call the ‘historical scenario’) and a scenario with a more flexible interpretation of
the rules (see the annex for the detailed assumptions).
Third, substantial differences exist between countries that are placed under the excessive
deficit procedure (EDP) and those that are not. We estimate that about 14 countries will be
under the excessive deficit procedure.
Fourth, an important operational target, the Medium-Term Objective (MTO) for the structural
budget balance, can be set and might be adjusted upward given higher debt levels, thereby
requiring greater fiscal adjustment needs. We use the 2020 MTOs.
Fifth, we assume the non-application of the 1/20th debt reduction rule, which would require
a fiscal effort big enough to close the gap between current debt levels and the 60% debt
benchmark of the EU treaties at the required pace (see Table A3 in the Annex for our
simulations of this rule). Thirteen countries would violate the 1/20th rule in at least one year
under our flexible scenario. For countries with debt ratios over 100% of GDP, inconceivably
large fiscal adjustments would be needed to meet this rule, with adverse impacts on output.
We ignore the 1/20th rule because violations of this rule in the past decade did not lead to
excessive deficit procedures as relevant factors were taken into account, such as the
implementation of structural reforms.
Sixth, Next Generation EU funds can substantially change the fiscal adjustment dynamics in
some countries, depending on their precise treatment in the fiscal rules.
Finally, we take the Commission’s GDP and output gap estimates up to 2025 as given (and
assume the 2025 growth rate for subsequent years), but obviously different fiscal adjustment
paths have different impacts on GDP that we do not analyse. If the Commission’s GDP scenario
is consistent with our historical fiscal adjustment scenario, then our flexible scenario could
result in (temporarily) faster growth. A key issue is if fiscal consolidation reduces the level of
potential output or not14. We call for a growth-friendly consolidation strategy, and in
particular, for increasing public investment, in which case fiscal consolidation might not have
an adverse impact on potential output, implying that possible transitory GDP impacts would
not undermine the interpretation of our scenarios.

Table 1 shows alternative scenarios for fiscal adjustment for the EU27 as a whole and the five most
populous EU countries (we present results for the other EU countries, as well as the main
assumptions for the simulations, in an annex).

14

Fatás (2019) argued that a negative loop might have been at work after the global financial crisis in Europe:
low GDP growth was seen as structural so potential output estimates were revised downwards, and this pushed
policymakers to believe that further fiscal policy adjustments were needed. The successive rounds of fiscal
contractions might then have caused further reductions in potential output, via hysteresis effects, that validated
the initial pessimistic estimates.

8

Table 1: Fiscal adjustment scenarios
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
output gap
1.3 -5.9 -3.1 -0.4 -0.3 -0.1
0
0
0
0
0
0
0
0
0
0
historical SB
-1.1 -3.6 -5.8 -3.4 -2.8 -2.1 -1.5 -1.1 -0.8 -0.5 -0.3 -0.3 -0.3 -0.3 -0.3 -0.3
scenario BB -0.5 -6.9 -7.5 -3.7 -2.9 -2.2 -1.5 -1.1 -0.8 -0.5 -0.3 -0.3 -0.3 -0.3 -0.3 -0.3
EU27
flexible SB
-1.1 -3.6 -5.8 -3.4 -3.1 -2.7 -2.2 -1.8 -1.4 -1.2 -1.0 -0.8 -0.6 -0.4 -0.3 -0.3
scenario BB -0.5 -6.9 -7.5 -3.7 -3.3 -2.8 -2.2 -1.8 -1.4 -1.2 -1.0 -0.8 -0.6 -0.4 -0.3 -0.3
NGEU grants
0.0
0.5
0.5
0.6
0.6
0.3
0.2
NGEU grants+loans
0.0
0.7
0.8
0.9
0.8
0.4
0.2
output gap
1.8 -7.1 -2.7
0.1
0.1
0.0
0
0
0
0
0
0
0
0
0
0
historical SB
-3.3 -4.6 -6.7 -4.7 -3.9 -3.2 -2.5 -1.9 -1.3 -0.7 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4
scenario BB -3.1 -9.2 -8.5 -4.7 -4.0 -3.2 -2.5 -1.9 -1.3 -0.7 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4
France
flexible SB
-3.3 -4.6 -6.7 -4.7 -4.2 -3.7 -3.2 -2.7 -2.1 -2.0 -1.5 -1.0 -0.5 -0.4 -0.4 -0.4
scenario BB -3.1 -9.2 -8.5 -4.7 -4.2 -3.7 -3.2 -2.7 -2.1 -2.0 -1.5 -1.0 -0.5 -0.4 -0.4 -0.4
NGEU grants
0.2
0.2
0.4
0.5
0.3
0.2
output gap
1.0 -4.8 -2.7
0.0
0.0
0.0
0
0
0
0
0
0
0
0
0
0
historical SB
1.0 -1.8 -6.2 -2.5 -1.9 -1.3 -0.7 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5
scenario BB
1.5 -4.2 -7.5 -2.5 -1.9 -1.3 -0.7 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5
Germany
flexible SB
1.0 -1.8 -6.2 -2.5 -2.4 -1.9 -1.4 -0.9 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5
scenario BB
1.5 -4.2 -7.5 -2.5 -2.4 -1.9 -1.4 -0.9 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5
NGEU grants
0.0
0.3
0.2
0.1
0.1
0.1
0.1
output gap
0.6 -8.6 -4.8 -1.4 -1.0 -0.5
0
0
0
0
0
0
0
0
0
0
historical SB
-2.0 -4.9 -9.3 -5.1 -4.2 -3.4 -2.5 -1.8 -1.0 -0.3
0.5
0.5
0.5
0.5
0.5
0.5
scenario BB -1.6 -9.5 -11.7 -5.8 -4.7 -3.6 -2.5 -1.8 -1.0 -0.3
0.5
0.5
0.5
0.5
0.5
0.5
Italy
flexible SB
-2.0 -4.9 -9.3 -5.1 -4.6 -4.1 -3.6 -3.1 -2.6 -2.0 -1.4 -1.3 -0.8 -0.3
0.2
0.5
scenario BB -1.6 -9.5 -11.7 -5.8 -5.0 -4.3 -3.6 -3.1 -2.6 -2.0 -1.4 -1.3 -0.8 -0.3
0.2
0.5
NGEU grants
0.6
0.5
1.1
1.3
0.7
0.4
NGEU grants+loans
1.6
2.4
2.7
2.7
1.3
0.4
output gap
-2.0 -1.2
0.7
0.5
0.2
0
0
0
0
0
0
0
0
0
0
historical SB
-6.2 -3.9 -2.9 -2.4 -1.9 -1.4 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0
scenario BB
-7.0 -4.3 -2.3 -2.0 -1.7 -1.4 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0
Poland
flexible SB
-6.2 -3.9 -2.9 -2.9 -2.4 -1.9 -1.4 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0
scenario BB
-7.0 -4.3 -2.3 -2.5 -2.2 -1.9 -1.4 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0
NGEU grants
0.7
0.5
1.1
1.2
0.7
0.4
NGEU grants+loans
1.0
1.1
1.6
1.6
0.9
0.4
output gap
1.8 -9.3 -5.0
0.0
0.0
0.0
0
0
0
0
0
0
0
0
0
0
historical SB
-3.7 -4.2 -4.9 -5.2 -4.3 -3.4 -2.5 -1.8 -1.2 -0.6
0
0
0
0
0
0
scenario BB -2.9 -11.0 -7.6 -5.2 -4.3 -3.4 -2.5 -1.8 -1.2 -0.6
0
0
0
0
0
0
Spain
flexible SB
-3.7 -4.2 -4.9 -5.2 -4.7 -4.2 -3.7 -3.2 -2.7 -2.1 -2.0 -1.5 -1.0 -0.5
0
0
scenario BB -2.9 -11.0 -7.6 -5.2 -4.7 -4.2 -3.7 -3.2 -2.7 -2.1 -2.0 -1.5 -1.0 -0.5
0
0
NGEU grants
0.0
1.9
2.2
1.8
0.6
0.1
0.1

Source: Bruegel. Note: SB=structural budget balance expressed as percent of potential GDP, BB=headline budget
balance expressed as % of actual GDP. NGEU payments are expressed as percent of actual GDP. May 2021
European Commission forecast for 2019-2022 for SB and for 2019-2025 for the output gap; light red: excessive
deficit procedure; light blue: preventive arm with structural balance below the MTO; green: preventive arm with
structural balance at or above the MTO (no fiscal adjustment requirement). Regarding the time profile of NGEU,
the Recovery and Resilience Facility time profile is included only in the submitted plans of Germany and Spain
(among the five countries included in the table) and we use these time profiles. For the other components of
NGEU in the cases of Germany and Spain, and all components of NGEU for the other three countries, we use the
time profile derived from European Commission (2020); see Darvas (2020). For NGEU loans, we consider the
actual amounts requested by Italy and Poland.

The expected significant reduction in the structural deficit from 2021 to 2022 mainly results from
unwinding of pandemic-support measures. The European Commission expects the EU27 structural
deficit to reduce from 5.8% of potential output in 2021 to 3.4% in 2022 (Table 1). This fiscal tightening

9

is expected to result from the partial unwinding of the 2020-2021 discretionary expenditure measures
(Figure A1 in annex)15.

Table 1 shows that substantial flexibility in the fiscal consolidation would be possible with the EU
fiscal rules reinstated from 2023 and with NGEU further easing adjustment paths initially. In the
EU27 as a whole, our flexible scenario implies 0.3% fiscal consolidation in 2023, 0.4% in 2024 and 0.5%
in 2025. There are some differences between countries, but they do not change the overall picture.
For example, in our flexible scenario, the fiscal consolidation effort that France would have to
undertake from 2022 to 2023 would amount to 0.5% of GDP, reduced by 0.2% of GDP because of the
increase in the transfer from NGEU from 2022 to 2023. In Italy, the increase in NGEU grants would
even completely offset the fiscal consolidation need in 2023. If Germany and Poland invoke the
structural balance clause already in 2023, as we assume in our flexible scenario, then practically no
fiscal consolidation will be needed in 2023. Only Spain will face a sizeable fiscal consolidation in 2023
in our flexible scenario, because of the 0.5% adjustment required by the EDP, which would be
reinforced by a 0.4% decline in NGEU grants. Yet we note that the time profile of NGEU payments
planned by the Spanish government (which we use in our simulations) is heavily frontloaded and might
be difficult to implement. Slower implementation in line with the Commission’s 2020 assumptions
(that we use for Italy and Poland, for example) would result in an increase in NGEU funding from 2022
to 2023, thereby reducing the impact of the EDP-induced fiscal consolidation need in 2023. In
summary, under a flexible interpretation of the existing fiscal rules, fiscal consolidation needs in 2023
would be rather small.
For most countries, a small increase in NGEU grants is also expected for 2024 (thereby partially
compensating for the consolidation requirement under fiscal rules), but NGEU grant payments are
expected to decline in 2025-2026, aggravating the impact of fiscal consolidation16.
Overall, fiscal deficits will have to be reduced gradually as the EU exits the 2020 recession, but
substantial flexibility exists. Our simulations suggest that with a flexible interpretation of current
rules, the fiscal consolidation requirement will be relatively small in 2023 in many EU countries, and
further eased by grants from NGEU. Thereafter, fiscal adjustment will have to resume at or somewhat
above 0.5% of GDP in countries that have not yet reached their MTOs.

5. Policy trade-offs
The central policy challenge for finance ministries in the coming years will be to consolidate deficits
while increasing green investment. Evidence suggests that in the current fiscal framework, this will
not be achieved because of political economy constraints. There are important reasons why
politicians prefer cutting investment over current spending. First, in aging societies, the interests of
future generations have less electoral support. Vote-maximising politicians are then likely to decide
against the future, as seen in previous fiscal consolidation episodes. Second, fiscal rules disadvantage
investments by treating them fully as current expenses, even though the benefits of investments
15

Yet some of the COVID-19-induced discretionary expenditure measures and most of the discretionary revenue
measures are expected to remain in place in 2022. This could help fiscal consolidation after 2022, because it
should be easier to unwind crisis-support measures than to cut long-standing entitlements. One-off and other
temporary measures were rather small in the past years and hence do not play a significant role in fiscal
adjustments.
16
We discuss this further in Darvas and Wolff (2021).

10

accrue over long periods17. This biases the political economy further against investment. Basic
accounting logic would allow net investments to be funded by deficits as they increase the stock of
assets18.
We discuss three options for dealing with the trade-off between fiscal consolidation and increased
green public investment:
•
•
•

A general relaxation of EU fiscal rules;
The introduction of a green golden rule;
Centralised EU capacity to fund green investment, possibly via EU borrowing.

A general relaxation of the stringency of fiscal rules would not provide direct incentives to increase
green public investment and would create risks of excessive deficits in good times. Our simulations
suggest that a flexible interpretation of the existing fiscal rules would allow for a correction of deficits
over several years. Combined with NGEU, the fiscal adjustment required during 2023 and 2024 would
actually be small compared to previous consolidation episodes19. Less-stringent fiscal rules on deficit
reduction do not, however, provide incentives to increase public investment. Additional fiscal
resources could well be used for recurrent consumptive spending given the political economy reality.
Going beyond existing flexibility in the fiscal rules would thus not necessarily increase green
investment.
Allowing green investment to be funded by deficits that would not count in the fiscal rules would
provide incentives to undertake them. It would provide a positive incentive to maintain and increase
green investment during the consolidation phase because such investment would be excluded from
the consolidation requirements.
Exempting investment spending from deficits as considered in the fiscal rules has been rejected in
the past. The main reasons include the difficulty of defining what exactly constitutes ‘investment’ with
positive future returns. It might create distortions, with favoured investments preferred over other
forms of capital or current spending that might also be beneficial over the long run. There would be
significant incentives to record current expenditure as capital spending. While we believe that these
worries can be satisfactorily addressed with political will, the need to increase climate-related public
investments should revive the discussion of at least a limited golden rule focusing on green
investment. Of course, also in the case of green investment, there are problems defining exactly their
scope but arguably less so thanks to the narrower goal of carbon emission reductions.
Good reasons justify deficit funding of green investment. The green infrastructure that is built will
be used over decades and the net investment needs are massive. A rebuilding of the energy system
and the transport infrastructure is a huge expense that simply won’t be funded from current budgets
given the political-economy constraints. The climate investment need is so large that it has a
macroeconomic dimension.

17

Note that corporate accounting rules treat current spending and investment spending differently: the cost of
an investment is not charged to a single year when the investment is implemented, but distributed over the
service life of the capital good.
18
This evident point was already made by Blanchard and Giavazzi (2004).
19
One can, of course, debate whether slower or faster fiscal adjustment is advisable, given the state of the EU’s
economies. This is outside the scope of our note. For slower adjustment, a general revision of the fiscal rules
would be necessary. Under the basic agreements of the EU’s monetary union, however, fiscal consolidations are
unavoidable.

11

The impact of green investment on growth is uncertain. Investment in green technology can certainly
create economic growth opportunities if new products are exported globally. In particular, efforts to
create new technologies to address climate change are not only imperative from a climate perspective
but also create substantial economic opportunities. Moreover, green investment can have positive
multiplier effects in an economy of demand shortage20. On the other hand, green investment is often
still more expensive than the brown alternative. Green infrastructure replaces brown infrastructure
that might still operate for years with some sunk costs, an argument that led Pisani-Ferry (2021) to a
pessimistic assessment of the growth effects. The strength of these various effects is hotly debated.
Major additional green investments, as well as climate change, could also affect the real equilibrium
interest rate, a variable of central importance for the sustainability of debt21. While in the eyes of the
European Commission, the Green Deal constitutes “Europe’s growth strategy”, the model results
presented by the Commission are less clear-cut or even negative for growth22. We definitely see the
need for more research on this question.
Failing to invest in climate adaptation in particular would entail substantial risks to output and
livelihoods, as recent extreme weather has shown. As the frequency of extreme-weather events
increases, their costs will become increasingly visible. There is so far no agreement on how big the
costs will be. But there can be no doubt that extreme-weather costs have major implications for
European societies, and policymakers need to invest in adaptation23.
Important policy trade-offs emerge in the case of a green golden rule, i.e. a rule that would exclude
green public investment from the computation of the deficit and debt relevant for the fiscal rules.
For reasons of economic logic and political economy, public green investment should be funded from
government deficits. However, given the uncertain growth effects of green public investment, the
debt sustainability question cannot be ignored. Investment in climate adaptation after the fires in
parts of southern Europe is necessary, but will weigh on debt sustainability if funded via deficits.
One bold and certainly controversial policy option would be to centrally fund all EU climate
expenditure, for example via a permanent dedicated NGEU-type borrowing mechanism. An
advantage of such a fund would be the approval of national green investment plans by the Commission
and the Council, thereby ensuring consistency with EU goals. However, such a fund would need to
amount on average to 1% of GDP over the next decade(s) and would thus be much larger than NGEU.
An important question would be whether or not such a fund would involve redistribution, similarly to
20

Hepburn et al (2020) found that professional respondents to a survey were optimistic in particular about the
multiplier effects of investment in infrastructure for connectivity and clean energy, and in clean research and
development (R&D).
21
It is beyond the scope of this note to discuss this in detail but it is important to highlight that climate change
could lower the real equilibrium interest rate, as highlighted in Bylund and Jonsson (2020). However, the major
increase in required investment in the energy system that we document would suggest an increase in the real
equilibrium interest rate.
22
Table 13 of the Commission’s staff working document on the impact assessment shows that the green deal
could well have negative growth effects. See https://eur-lex.europa.eu/resource.html?uri=cellar:749e04bbf8c5-11ea-991b-01aa75ed71a1.0001.02/DOC_1&format=PDF.
23
A controversial literature tries to understand the implications of climate change for GDP. Especially given the
increased likelihood of tipping points, previous economic cost estimates may underestimate the real cost of
climate change; see for example Keen et al (2021). Kiley (2021) found that the effects of temperature on
downside risks to economic growth are substantial. The costs of the 2021 fires in Greece, for example, are
estimated to be substantial (https://m.naftemporiki.gr/story/1759664/sobara-ta-egkaumata-stin-oikonomiaapo-tis-purkagies) as are the costs of the 2021 floods in Germany and Belgium
(https://www.reuters.com/business/environment/berenberg-sees-2-3-bln-reinsurance-losses-europeanfloods-2021-07-19/).

12

the EU budget and NGEU. Since the EU budget and NGEU in particular are highly redistributive towards
poorer countries, such an approach would provide financial support to countries with greater
budgetary constraints. But important arguments weigh against such an approach. Unlike the
immediate recovery from the COVID-19 recession, in which significant cross-border demand spillovers
and risks of single market distortion justified a joint approach, no such demand spillovers exist for
climate policies in the steady state. Moreover, the climate externality from one country’s emissions is
of trivial size for the rest of the EU, and the marginal benefit of additional climate spending is probably
higher in low-income countries outside of the EU. Finally, a permanent mechanism would represent a
centralisation of fiscal policy that, while being beneficial from a euro-area and EU perspective, is hardly
politically desired nor backed by the current EU treaties.
5. Conclusions
During the upcoming fiscal consolidation phase, policymakers should be mindful of its pace and of
the composition of public spending. An overly fast pace of fiscal consolidation, such as implemented
after the 2007 global financial and subsequent euro crises, can adversely impact potential output and
trigger a new recession and should therefore be avoided. In addition, policy makers should not only
avoid cutting future-oriented spending such as investments in climate mitigation and adaption, but
should increase such spending significantly. Political economy constraints have in previous
consolidation episodes meant that expenditure cuts came at the expense of investment, education
spending and R&D spending – despite pledges to the contrary. EU policymakers will need to do better
this time if they want to achieve their climate goals and keep up spending for the future.
We recommend a ‘Green Fiscal Pact’ composed of the following elements:
•
•
•
•

introduction of a green golden rule that excludes net green public investment from the deficit
and debt calculations under the EU’s fiscal rules;
beyond the new green golden rule and the most flexible application of existing fiscal rules, a
further relaxation of deficit adjustment paths is not necessary;
fiscally weak countries should, for the moment, rely on NGEU for their green investment and
cannot ignore risks to budget constraints;
incentivising private investment through appropriate taxation and regulation.

A green golden rule would incentivise the necessary public investments in climate. Without the
possibility of deficit funding, the EU will fail to achieve its goal of climate neutrality, and budget
consolidation will come at the expense of investment because of political economy constraints.
Allowing deficit funding of net green public investments would – de facto – delay the budgetary
consolidation in the coming years. This should support the macroeconomic recovery and contribute
to the medium-term attainment of the European Central Bank’s inflation goal. However, given the
uncertain growth effects of green investment, we cannot in general recommend a further relaxation
of deficit adjustment paths. We do think, however, that existing flexibility should be used to the full.
On the whole, some form of a green golden rule would usefully complement the existing fiscal
framework. This would provide clear incentives for green public investment without opening the
Pandora’s box of increasing deficit funding in general24.

24

Accordingly, national fiscal rules that may be more binding would need to be adapted to allow for green
investment in line with EU goals. On the controversial debate in Germany, see Hüther and Südekum (2020) and
Feld et al (2021).

13

For countries with greater debt-sustainability concerns, difficult policy trade-offs continue to exist
and the application of a green golden rule needs to be handled more carefully. We do not assess
here the actual fiscal sustainability concerns but would like to point out that climate change may well
tighten budget constraints in countries with already high debt levels because of its negative growth
effects. Ultimately, it is a political choice how to resolve this tension between green investment needs
and budget constraints. NGEU goes some way in the direction of reducing the trade-off by directing
European money at climate investments in fiscally less-strong countries. Only after NGEU expires, does
the question of a green golden rule become relevant for these countries.
Finally, we would like to emphasise the need to ensure that private investment be incentivised
through appropriate taxation and regulation, to reduce the bill to the public sector. Political instinct
may be to avoid unpopular taxes on emissions while preferring to subsidise expensive investments.
This strategy would, however, mean that decarbonisation will become more expensive and the
negative growth effects will possibly be larger because of the less efficient approach chosen. And the
fiscal costs would be higher and budgetary trade-offs more difficult.

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16

Annex

Table A1: Public expenditure adjustment after the global crisis, % change in constant price values
from 2009 to 2013
Primary expenditure
Interest expenditure
Investment
R&D
Unemployment
Old age
Familiy, children, housing
Education
Health
Environment protection
General services (general public services,
defence, public order and safety, housing
and community amenities)

EU27 GR, IE, PT
1.0%
-10.7%
1.3%
14.1%
-18.0%
-50.3%
-3.0%
-21.2%
-2.9%
7.9%
7.4%
-4.5%
-1.9%
-18.3%
-0.7%
-11.5%
1.2%
-23.7%
4.0%
5.8%

-1.9%

-27.4%

IE, ES
NMS13
-6.0%
1.3%
24.9%
18.5%
-45.4%
-13.4%
-13.3%
24.0%
8.7%
-30.8%
7.9%
9.0%
-17.9%
-5.0%
-13.5%
-0.5%
-9.2%
2.2%
-6.1%
15.3%

-12.7%

-1.2%

EU9
4.7%
-15.3%
-0.6%
1.0%
-6.1%
8.0%
1.9%
4.8%
7.4%
7.2%

5.2%

Source: Bruegel based on AMECO and COFOG datasets.
Note: NMS13: EU members joined in 2004-2013; EU9: AT, BE, DE, DK, FI, FR, LU, NL, SE. Current price values were
deflated with the national GDP deflator. Country-group aggregates including non-euro countries were calculated
with using a fixed exchange rate to the euro (the 2008-2020 average) in order to avoid that exchange rate
fluctuations in floating rate countries impact the values expressed in euros.

17

Figure A1: Discretionary and one-off measures in the EU (%GDP)
4

Discretionary expenditure measures

3

Discretionary revenue measures
One-off and other temporary expenditure measures

2

One-off and other temporary revenue measures

1
0
-1
-2
-3

2011

2012

2013

2014

2015

2016

2017

2018

2019

Source: May 2021 AMECO dataset. Note: data refer to the current 27 EU countries.

18

2020

2021

2022

Assumptions for our fiscal scenarios presented in Table 1 and Table A2
•

•
•

•

•

•

We use the GDP and output gap forecasts and projections of the European Commission up to
2025, which assume a zero output gap for all countries from 2025 onwards, though a closeto-zero gap is forecast already for 2022 for some countries25. We assume the 2025 growth
rate for subsequent years (see our discussion on the interaction of fiscal consolidation and
GDP growth in the main text).
We assume no one-off fiscal measures from 2023.
Historical scenario for excessive deficits: in the past decade, for several countries, the time
allowed to correct an excessive deficit was three years and the required structural adjustment
would have reduced the structural deficit to 2.5% of GDP.
Flexible scenario for excessive deficits: the Treaty and the Stability and Growth Pact (SGP)
legislation does not define an upper time limit for adjusting excessive deficits, while the SGP
sets half a percent of GDP as the minimum adjustment. Thus, this scenario requires half a
percent adjustment in the structural balance per year until the headline deficit falls below 3%.
Historical scenario for the preventive arm: a country not yet at its MTO should reach it by
implementing fiscal consolidation, depending on the economic situation and the level of
public debt, according to a matrix endorsed by the February 2016 ECOFIN Council. For many
instances in the past decade, the MTO had to be reached in four years. Given that the output
gap is projected to be in the range of ±1.5% in 2023 in almost all EU countries, the matrix
implies a 0.5% annual adjustment for countries with public debt below 60% of GDP, and more
than 0.5% for countries with debt ratios above 60%. For the latter countries, we consider
either 0.6% or more if that is needed to reach the MTO in four years.
Flexible scenario for the preventive arm: this scenario considers the adoption of the structural
reform clause, because all EU countries will implement major structural reforms according to
their recovery and resilience plans26. This clause can allow a temporary deviation from the
adjustment path to the MTO by 0.5% of GDP in the first year of its application, which should
be compensated for in subsequent years. However, one of the conditions of the adoption of
the structural reform clause is that the maximum initial distance of the structural balance from
the MTO is 1.5% of GDP, in order to ensure that in the benchmark case of an annual
adjustment of 0.5% of GDP, the MTO can be achieved within the four-year horizon of the
Stability or Convergence Programme. Thus, if this condition is not expected to be met in 2023,
then for initial few years after 2023, we consider the speed as required by the matrix
mentioned above. We assume the application of the structural balance clause in the first year
when the gap to the MTO would be reduced to 1.5% or below, and thereafter assume 0.5%
annual adjustment27.

25

Croatia, France, Germany, Latvia, Netherlands, Portugal, Slovenia and Spain.
We do not consider the investment clause, because one of its conditions is that the negative output gap should
be greater than 1.5 % of GDP. According to the May 2021 European Commission projections, only Lithuania (1.76%) and Luxembourg (-1.77%) are expected to have a larger than 1.5 percent of GDP negative output gap in
2023.
27
An example for our application of the structural reform clause: Austria’s MTO is 0.5% deficit, so the clause
could be applied when the structural deficit falls to 2.0% or below. According to our historical scenario, the
Austrian structural deficit would evolve as: 2023: 2.3%, 2024: 1.7%, 2025:1.1%, 2026: 0.5%. Consequently,
Austria could apply the clause in 2024 with a 0.5% deviation, so in our flexible scenario, the structural deficit is
assumed to be 2.2% instead of 1.7% in 2024. Thereafter, we assume the structural deficit is reduced by 0.5% in
2025, 2026 and 2027, while the remaining 0.2% gap to MTO is eliminated in 2028.
26

19

•

•

For the three countries that are expected to exceed their MTOs in 2022 (Denmark,
Luxembourg and Sweden) we assume that the 2022 structural balance remains unchanged in
later years.
The 2020 MTOs remain unchanged; thus, when a country reaches its 2020 MTO, no further
fiscal consolidation is done.

Whenever the output gap is zero and there are no one-offs, the structural balance is the same as the
headline balance. Thus, the change in the headline balance is driven by two main factors: the cyclical
recovery (the change in the output gap multiplied with a country-specific elasticity) and the fiscal
effort (the change in the structural balance). We assume that countries in which the headline budget
deficit would exceed 3% in 2023 in the absence of fiscal effort are placed in an excessive deficit
procedure (EDP). We simulate the development of the structural and headline balances under our
scenarios and assume that an EDP ends when the headline balance falls below 3%. From that year, we
continue our simulation by assuming our scenarios for the preventive arm, until the MTO is reached.

20

Table A2: Fiscal adjustment scenarios for all EU countries
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
output gap
1.3 -5.9 -3.1 -0.4 -0.3 -0.1
0
0
0
0
0
0
0
0
0
0
historical SB
-1.1 -3.6 -5.8 -3.4 -2.8 -2.1 -1.5 -1.1 -0.8 -0.5 -0.3 -0.3 -0.3 -0.3 -0.3 -0.3
scenario BB -0.5 -6.9 -7.5 -3.7 -2.9 -2.2 -1.5 -1.1 -0.8 -0.5 -0.3 -0.3 -0.3 -0.3 -0.3 -0.3
EU27
flexible SB
-1.1 -3.6 -5.8 -3.4 -3.1 -2.7 -2.2 -1.8 -1.4 -1.2 -1.0 -0.8 -0.6 -0.4 -0.3 -0.3
scenario BB -0.5 -6.9 -7.5 -3.7 -3.3 -2.8 -2.2 -1.8 -1.4 -1.2 -1.0 -0.8 -0.6 -0.4 -0.3 -0.3
NGEU grants
0.0
0.5
0.5
0.6
0.6
0.3
0.2
NGEU grants+loans
0.0
0.7
0.8
0.9
0.8
0.4
0.2
output gap
2.1 -5.5 -3.2 -0.2 -0.1 -0.1
0
0
0
0
0
0
0
0
0
0
historical SB
-0.6 -5.7 -5.8 -2.9 -2.3 -1.7 -1.1 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5
scenario BB
0.6 -8.9 -7.6 -3.0 -2.3 -1.7 -1.1 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5
Austria
flexible SB
-0.6 -5.7 -5.8 -2.9 -2.3 -2.2 -1.7 -1.2 -0.7 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5
scenario BB
0.6 -8.9 -7.6 -3.0 -2.3 -2.2 -1.7 -1.2 -0.7 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5
NGEU grants
0.1
0.1
0.2
0.3
0.2
0.1
output gap
1.1 -6.3 -3.1 -0.9 -0.6 -0.3
0
0
0
0
0
0
0
0
0
0
historical SB
-2.8 -5.6 -5.8 -4.4 -3.8 -3.1 -2.5 -1.8 -1.2 -0.6
0
0
0
0
0
0
scenario BB -1.9 -9.4 -7.6 -4.9 -4.1 -3.3 -2.5 -1.8 -1.2 -0.6
0
0
0
0
0
0
Belgium
flexible SB
-2.8 -5.6 -5.8 -4.4 -3.9 -3.4 -2.9 -2.3 -1.7 -1.6 -1.1 -0.6 -0.1
0.0
0
0
scenario BB -1.9 -9.4 -7.6 -4.9 -4.3 -3.6 -2.9 -2.3 -1.7 -1.6 -1.1 -0.6 -0.1
0.0
0
0
NGEU grants
0.2
0.4
0.3
0.3
0.2
0.1
output gap
2.8 -3.2 -1.9
0.4
0.3
0.1
0
0
0
0
0
0
0
0
0
0
historical SB
1.3 -2.5 -2.6 -2.0 -1.5 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0
scenario BB
2.1 -3.4 -3.2 -1.9 -1.4 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0
Bulgaria
flexible SB
1.3 -2.5 -2.6 -2.0 -2.0 -1.5 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0
scenario BB
2.1 -3.4 -3.2 -1.9 -1.9 -1.5 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0
NGEU grants
1.5
1.2
2.4
2.6
1.6
0.9
output gap
3.8 -5.5 -3.1
0.1
0.1
0.0
0
0
0
0
0
0
0
0
0
0
historical SB
-1.4 -5.0 -3.2 -3.3 -2.8 -2.2 -1.6 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0
scenario BB
0.3 -7.4 -4.6 -3.2 -2.7 -2.2 -1.6 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0
Croatia
flexible SB
-1.4 -5.0 -3.2 -3.3 -2.8 -2.5 -2.0 -1.5 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0
scenario BB
0.3 -7.4 -4.6 -3.2 -2.7 -2.5 -2.0 -1.5 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0 -1.0
NGEU grants
1.7
1.3
3.0
3.3
2.0
1.2
output gap
5.4 -1.9 -0.9
0.7
0.4
0.2
0
0
0
0
0
0
0
0
0
0
historical SB
0.0 -4.7 -4.7 -2.4 -1.8 -1.2 -0.6
0
0
0
0
0
0
0
0
0
scenario BB
1.5 -5.7 -5.1 -2.0 -1.5 -1.0 -0.6
0
0
0
0
0
0
0
0
0
Cyprus
flexible SB
0.0 -4.7 -4.7 -2.4 -1.8 -1.7 -1.2 -0.7 -0.2
0
0
0
0
0
0
0
scenario BB
1.5 -5.7 -5.1 -2.0 -1.5 -1.5 -1.2 -0.7 -0.2
0
0
0
0
0
0
0
NGEU grants
0.7
0.6
1.3
1.4
0.8
0.5
NGEU grants+loans
0.9
0.9
1.5
1.6
0.9
0.5
output gap
2.9 -4.4 -2.9 -0.7 -0.5 -0.2
0
0
0
0
0
0
0
0
0
0
historical SB
-0.8 -4.4 -7.5 -5.1 -4.2 -3.4 -2.5 -2.0 -1.5 -1.0 -0.75 -0.75 -0.75 -0.75 -0.75 -0.75
scenario BB
0.3 -6.2 -8.5 -5.4 -4.4 -3.5 -2.5 -2.0 -1.5 -1.0 -0.75 -0.75 -0.75 -0.75 -0.75 -0.75
Czechia
flexible SB
-0.8 -4.4 -7.5 -5.1 -4.6 -4.1 -3.6 -3.1 -2.6 -2.6 -2.1 -1.6 -1.1 -0.75 -0.75 -0.75
scenario BB
0.3 -6.2 -8.5 -5.4 -4.8 -4.2 -3.6 -3.1 -2.6 -2.6 -2.1 -1.6 -1.1 -0.75 -0.75 -0.75
NGEU grants
0.1
0.4
0.9
0.9
0.7
0.6
0.1
output gap
0.7 -4.1 -3.3 -2.1 -1.4 -0.7
0
0
0
0
0
0
0
0
0
0
historical SB
3.4
0.5
0.1
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
scenario BB
3.8 -1.1 -2.1 -1.4 -0.8 -0.2
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
Denmark
flexible SB
3.4
0.5
0.1
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
scenario BB
3.8 -1.1 -2.1 -1.4 -0.8 -0.2
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
NGEU grants
0.2
0.2
0.1
0.1
0.0
0.0
output gap
2.8 -4.3 -4.5 -2.8 -1.9 -0.9
0
0
0
0
0
0
0
0
0
0
historical SB
-1.3 -2.8 -4.2 -2.1 -1.6 -1.1 -0.6 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5
scenario BB
0.1 -4.9 -5.6 -3.3 -2.4 -1.5 -0.6 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5
Estonia
flexible SB
-1.3 -2.8 -4.2 -2.1 -2.1 -1.6 -1.1 -0.6 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5
scenario BB
0.1 -4.9 -5.6 -3.3 -2.9 -2.0 -1.1 -0.6 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5
NGEU grants
0.5
0.8
0.9
1.1
0.8
0.2
output gap
0.3 -3.6 -2.3 -1.0 -0.7 -0.3
0
0
0
0
0
0
0
0
0
0
historical SB
-1.2 -3.4 -3.3 -1.5 -0.9 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5
scenario BB -0.9 -5.4 -4.6 -2.1 -1.3 -0.7 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5
Finland
flexible SB
-1.2 -3.4 -3.3 -1.5 -1.4 -0.9 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5
scenario BB -0.9 -5.4 -4.6 -2.1 -1.8 -1.1 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5
NGEU grants
0.1
0.1
0.3
0.3
0.2
0.1

21

Table A2, continued
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034

output gap
1.8 -7.1 -2.7
historical SB
-3.3 -4.6 -6.7
scenario BB -3.1 -9.2 -8.5
France
flexible SB
-3.3 -4.6 -6.7
scenario BB -3.1 -9.2 -8.5
NGEU grants
0.2
output gap
1.0 -4.8 -2.7
historical SB
1.0 -1.8 -6.2
scenario BB
1.5 -4.2 -7.5
Germany
flexible SB
1.0 -1.8 -6.2
scenario BB
1.5 -4.2 -7.5
NGEU grants
0.0
0.3
output gap
-3.7 -10.8 -6.9
historical SB
2.0 -4.7 -6.6
scenario BB
1.1 -9.7 -10.0
Greece
flexible SB
2.0 -4.7 -6.6
scenario BB
1.1 -9.7 -10.0
NGEU grants
1.5
NGEU grants+loans
2.6
output gap
4.4 -3.9 -2.3
historical SB
-3.9 -6.3 -5.7
scenario BB -2.1 -8.1 -6.8
Hungary
flexible SB
-3.9 -6.3 -5.7
scenario BB -2.1 -8.1 -6.8
NGEU grants
0.8
output gap
0.0 -0.8 -0.5
historical SB
0.5 -4.6 -4.7
scenario BB
0.5 -5.0 -5.0
Ireland
flexible SB
0.5 -4.6 -4.7
scenario BB
0.5 -5.0 -5.0
NGEU grants
0.0
output gap
0.6 -8.6 -4.8
historical SB
-2.0 -4.9 -9.3
scenario BB -1.6 -9.5 -11.7
Italy
flexible SB
-2.0 -4.9 -9.3
scenario BB -1.6 -9.5 -11.7
NGEU grants
0.6
NGEU grants+loans
1.6
output gap
2.6 -3.6 -3.0
historical SB
-1.6 -3.3 -6.2
scenario BB -0.6 -4.5 -7.3
Latvia
flexible SB
-1.6 -3.3 -6.2
scenario BB -0.6 -4.5 -7.3
NGEU grants
1.0

0.1
-4.7
-4.7
-4.7
-4.7
0.2
0.0
-2.5
-2.5
-2.5
-2.5
0.2
-2.1
-2.2
-3.2
-2.2
-3.2
1.2
3.1
-0.4
-4.3
-4.5
-4.3
-4.5
1.4
0.1
-2.9
-2.9
-2.9
-2.9
0.0
-1.4
-5.1
-5.8
-5.1
-5.8
0.5
2.4
-0.2
-1.9
-2.0
-1.9
-2.0
0.8

0.1
-3.9
-4.0
-4.2
-4.2
0.4
0.0
-1.9
-1.9
-2.4
-2.4
0.1
-1.4
-1.5
-2.2
-1.6
-2.3
2.7
4.4
-0.3
-3.7
-3.9
-3.8
-4.0
1.1
0.1
-2.3
-2.3
-2.3
-2.3
0.1
-1.0
-4.2
-4.7
-4.6
-5.0
1.1
2.7
-0.2
-1.4
-1.5
-1.9
-2.0
1.6

0.0
-3.2
-3.2
-3.7
-3.7
0.5
0.0
-1.3
-1.3
-1.9
-1.9
0.1
-0.7
-0.8
-1.1
-1.5
-1.8
3.0
4.5
-0.1
-3.1
-3.2
-3.3
-3.4
1.0
0.0
-1.7
-1.7
-2.2
-2.2
0.1
-0.5
-3.4
-3.6
-4.1
-4.3
1.3
2.7
-0.1
-1.0
-1.0
-1.4
-1.4
1.8

0
-2.5
-2.5
-3.2
-3.2
0.3
0
-0.7
-0.7
-1.4
-1.4
0.1
0
-0.1
-0.1
-1.0
-1.0
1.7
2.4
0
-2.5
-2.5
-2.8
-2.8
0.6
0
-1.1
-1.1
-1.7
-1.7
0.1
0
-2.5
-2.5
-3.6
-3.6
0.7
1.3
0
-1.0
-1.0
-1.0
-1.0
1.0

0
-1.9
-1.9
-2.7
-2.7
0.2
0
-0.5
-0.5
-0.9
-0.9
0.1
0
0.25
0.25
-0.5
-0.5
1.0
1.0
0
-1.9
-1.9
-2.7
-2.7
0.3
0
-0.5
-0.5
-1.2
-1.2
0.0
0
-1.8
-1.8
-3.1
-3.1
0.4
0.4
0
-1.0
-1.0
-1.0
-1.0
0.6

historical SB
scenario BB
Lithuania
flexible SB
scenario BB
NGEU grants
output gap
historical SB
Luxembo scenario BB
urg
flexible SB
scenario BB
NGEU grants

-5.0
-6.0
-5.0
-6.0
0.6
-2.7
1.1
-0.1
1.1
-0.1
0.1

-4.1
-4.8
-4.5
-5.2
1.2
-1.8
1.1
0.3
1.1
0.3
0.1

-3.3
-3.7
-4.0
-4.3
1.3
-0.9
1.1
0.7
1.1
0.7
0.1

-2.5
-2.5
-3.5
-3.5
0.7
0
1.1
1.1
1.1
1.1
0.0

-2.0
-2.0
-3.0
-3.0
0.4
0
1.1
1.1
1.1
1.1
0.0

-1.0
0.5
-1.0
0.5

-6.7
-7.4
-6.7
-7.4

-1.0
2.8
2.4
2.8
2.4

-4.7
-1.9
-4.1
-1.9
-4.1

-7.0
-8.2
-7.0
-8.2
0.7
-3.2
1.1
-0.3
1.1
-0.3
0.0

22

0
-1.3
-1.3
-2.1
-2.1

0
-0.7
-0.7
-2.0
-2.0

0
-0.4
-0.4
-1.5
-1.5

0
-0.4
-0.4
-1.0
-1.0

0
-0.4
-0.4
-0.5
-0.5

0
-0.4
-0.4
-0.4
-0.4

0
-0.4
-0.4
-0.4
-0.4

0
-0.4
-0.4
-0.4
-0.4

0
-0.5
-0.5
-0.5
-0.5

0
-0.5
-0.5
-0.5
-0.5

0
-0.5
-0.5
-0.5
-0.5

0
-0.5
-0.5
-0.5
-0.5

0
-0.5
-0.5
-0.5
-0.5

0
-0.5
-0.5
-0.5
-0.5

0
-0.5
-0.5
-0.5
-0.5

0
-0.5
-0.5
-0.5
-0.5

0
0.25
0.25
0.0
0.0

0
0.25
0.25
0.25
0.25

0
0.25
0.25
0.25
0.25

0
0.25
0.25
0.25
0.25

0
0.25
0.25
0.25
0.25

0
0.25
0.25
0.25
0.25

0
0.25
0.25
0.25
0.25

0
0.25
0.25
0.25
0.25

0
-1.3
-1.3
-2.2
-2.2

0
-1.0
-1.0
-1.7
-1.7

0
-1.0
-1.0
-1.2
-1.2

0
-1.0
-1.0
-1.0
-1.0

0
-1.0
-1.0
-1.0
-1.0

0
-1.0
-1.0
-1.0
-1.0

0
-1.0
-1.0
-1.0
-1.0

0
-1.0
-1.0
-1.0
-1.0

0
-0.5
-0.5
-0.7
-0.7

0
-0.5
-0.5
-0.5
-0.5

0
-0.5
-0.5
-0.5
-0.5

0
-0.5
-0.5
-0.5
-0.5

0
-0.5
-0.5
-0.5
-0.5

0
-0.5
-0.5
-0.5
-0.5

0
-0.5
-0.5
-0.5
-0.5

0
-0.5
-0.5
-0.5
-0.5

0
-1.0
-1.0
-2.6
-2.6

0
-0.3
-0.3
-2.0
-2.0

0
0.5
0.5
-1.4
-1.4

0
0.5
0.5
-1.3
-1.3

0
0.5
0.5
-0.8
-0.8

0
0.5
0.5
-0.3
-0.3

0
0.5
0.5
0.2
0.2

0
0.5
0.5
0.5
0.5

0
-1.0
-1.0
-1.0
-1.0

0
-1.0
-1.0
-1.0
-1.0

0
-1.0
-1.0
-1.0
-1.0

0
-1.0
-1.0
-1.0
-1.0

0
-1.0
-1.0
-1.0
-1.0

0
-1.0
-1.0
-1.0
-1.0

0
-1.0
-1.0
-1.0
-1.0

0
-1.0
-1.0
-1.0
-1.0

-1.5
-1.5
-3.0
-3.0

-1.0
-1.0
-2.5
-2.5

-1.0
-1.0
-2.0
-2.0

-1.0
-1.0
-1.5
-1.5

-1.0
-1.0
-1.0
-1.0

-1.0
-1.0
-1.0
-1.0

-1.0
-1.0
-1.0
-1.0

-1.0
-1.0
-1.0
-1.0

0
1.1
1.1
1.1
1.1

0
1.1
1.1
1.1
1.1

0
1.1
1.1
1.1
1.1

0
1.1
1.1
1.1
1.1

0
1.1
1.1
1.1
1.1

0
1.1
1.1
1.1
1.1

0
1.1
1.1
1.1
1.1

0
1.1
1.1
1.1
1.1

Table A2, continued
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034

output gap
4.3
historical SB
-1.7
scenario BB
0.4
Malta
flexible SB
-1.7
scenario BB
0.4
NGEU grants
output gap
1.4
historical SB
0.8
Netherlan scenario BB
1.8
ds
flexible SB
0.8
scenario BB
1.8
NGEU grants
output gap
3.6
historical SB
-2.5
scenario BB -0.7
Poland
flexible SB
-2.5
scenario BB -0.7
NGEU grants
NGEU grants+loans
output gap
3.5
historical SB
-1.2
scenario BB
0.1
Portugal
flexible SB
-1.2
scenario BB
0.1
NGEU grants
NGEU grants+loans
output gap
1.6
historical SB
-4.7
scenario BB -4.4
Romania
flexible SB
-4.7
scenario BB -4.4
NGEU grants
NGEU grants+loans
output gap
2.4
historical SB
-2.3
scenario BB -1.3
Slovakia
flexible SB
-2.3
scenario BB -1.3
NGEU grants
output gap
4.7
historical SB
-1.7
scenario BB
0.4
Slovenia
flexible SB
-1.7
scenario BB
0.4
NGEU grants
NGEU grants+loans
output gap
1.8
historical SB
-3.7
scenario BB -2.9
Spain
flexible SB
-3.7
scenario BB -2.9
NGEU grants
output gap
-0.2
historical SB
0.7
scenario BB
0.6
Sweden
flexible SB
0.7
scenario BB
0.6
NGEU grants

-5.6 -4.5
-7.5 -9.7
-10.1 -11.8
-7.5 -9.7
-10.1 -11.8
0.4
-3.7 -2.5
-2.0 -3.4
-4.3 -5.0
-2.0 -3.4
-4.3 -5.0
0.1
-2.0 -1.2
-6.2 -3.9
-7.0 -4.3
-6.2 -3.9
-7.0 -4.3
0.7
1.0
-5.6 -3.3
-2.0 -3.2
-5.7 -4.7
-2.0 -3.2
-5.7 -4.7
0.9
1.1
-5.3 -3.6
-7.5 -6.9
-9.2 -8.0
-7.5 -6.9
-9.2 -8.0
0.9
1.9
-3.9 -1.4
-4.7 -6.0
-6.2 -6.5
-4.7 -6.0
-6.2 -6.5
0.9
-3.4 -1.6
-6.7 -7.7
-8.4 -8.5
-6.7 -7.7
-8.4 -8.5
0.6
0.9
-9.3 -5.0
-4.2 -4.9
-11.0 -7.6
-4.2 -4.9
-11.0 -7.6
0.0
1.9
-4.8 -2.5
-0.4 -1.9
-3.1 -3.3
-0.4 -1.9
-3.1 -3.3
0.0
0.2

-2.1
-4.5
-5.5
-4.5
-5.5
0.4
-0.2
-1.7
-1.8
-1.7
-1.8
0.1
0.7
-2.9
-2.3
-2.9
-2.3
0.5
1.1
-0.2
-3.2
-3.4
-3.2
-3.4
0.7
1.1
-2.1
-6.4
-7.1
-6.4
-7.1
0.8
2.4
0.8
-4.4
-4.1
-4.4
-4.1
0.7
0.0
-4.7
-4.7
-4.7
-4.7
0.5
0.9
0.0
-5.2
-5.2
-5.2
-5.2
2.2
-1.4
0.2
-0.5
0.2
-0.5
0.2

-1.4
-3.8
-4.5
-4.0
-4.6
0.8
-0.1
-1.2
-1.2
-1.7
-1.7
0.2
0.5
-2.4
-2.0
-2.9
-2.5
1.1
1.6
-0.1
-2.5
-2.6
-2.7
-2.8
1.7
2.0
-1.4
-5.1
-5.6
-5.9
-6.4
1.6
3.0
0.6
-3.7
-3.5
-3.9
-3.7
1.6
0.0
-4.0
-4.0
-4.2
-4.2
1.0
1.3
0.0
-4.3
-4.3
-4.7
-4.7
1.8
-0.9
0.2
-0.3
0.2
-0.3
0.2

-0.7
-3.2
-3.5
-3.5
-3.8
0.9
-0.1
-0.7
-0.7
-1.2
-1.2
0.2
0.2
-1.9
-1.7
-2.4
-2.2
1.2
1.6
-0.1
-1.9
-1.9
-2.1
-2.2
1.9
2.1
-0.7
-3.8
-4.0
-5.4
-5.6
1.7
2.9
0.3
-3.1
-3.0
-3.4
-3.3
1.8
0.0
-3.2
-3.2
-3.7
-3.7
1.1
1.4
0.0
-3.4
-3.4
-4.2
-4.2
0.6
-0.5
0.2
0.0
0.2
0.0
0.1

0
-2.5
-2.5
-3.0
-3.0
0.4
0
-0.5
-0.5
-0.7
-0.7
0.1
0
-1.4
-1.4
-1.9
-1.9
0.7
0.9
0
-1.2
-1.2
-2.0
-2.0
1.1
1.2
0
-2.5
-2.5
-4.9
-4.9
1.0
1.5
0
-2.5
-2.5
-2.9
-2.9
1.0
0
-2.5
-2.5
-3.2
-3.2
0.6
0.7
0
-2.5
-2.5
-3.7
-3.7
0.1
0
0.2
0.2
0.2
0.2
0.0

0
-1.9
-1.9
-2.4
-2.4
0.2
0
-0.5
-0.5
-0.5
-0.5
0.1
0
-1.0
-1.0
-1.4
-1.4
0.4
0.4
0
-0.6
-0.6
-1.5
-1.5
0.7
0.7
0
-2.0
-2.0
-4.4
-4.4
0.5
0.5
0
-2.0
-2.0
-2.9
-2.9
0.6
0
-1.9
-1.9
-2.7
-2.7
0.4
0.4
0
-1.8
-1.8
-3.2
-3.2
0.1
0
0.2
0.2
0.2
0.2
0.0

0
-1.3
-1.3
-1.8
-1.8

0
-0.6
-0.6
-1.7
-1.7

0
0
0
-1.2
-1.2

0
0
0
-0.7
-0.7

0
0
0
-0.2
-0.2

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
-0.5
-0.5
-0.5
-0.5

0
-0.5
-0.5
-0.5
-0.5

0
-0.5
-0.5
-0.5
-0.5

0
-0.5
-0.5
-0.5
-0.5

0
-0.5
-0.5
-0.5
-0.5

0
-0.5
-0.5
-0.5
-0.5

0
-0.5
-0.5
-0.5
-0.5

0
-0.5
-0.5
-0.5
-0.5

0
-1.0
-1.0
-1.0
-1.0

0
-1.0
-1.0
-1.0
-1.0

0
-1.0
-1.0
-1.0
-1.0

0
-1.0
-1.0
-1.0
-1.0

0
-1.0
-1.0
-1.0
-1.0

0
-1.0
-1.0
-1.0
-1.0

0
-1.0
-1.0
-1.0
-1.0

0
-1.0
-1.0
-1.0
-1.0

0
0
0
-1.0
-1.0

0
0
0
-0.5
-0.5

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
-1.5
-1.5
-3.9
-3.9

0
-1.0
-1.0
-3.4
-3.4

0
-1.0
-1.0
-2.9
-2.9

0
-1.0
-1.0
-2.9
-2.9

0
-1.0
-1.0
-2.4
-2.4

0
-1.0
-1.0
-1.9
-1.9

0
-1.0
-1.0
-1.4
-1.4

0
-1.0
-1.0
-1.0
-1.0

0
-1.5
-1.5
-2.4
-2.4

0
-1.0
-1.0
-1.9
-1.9

0
-1.0
-1.0
-1.4
-1.4

0
-1.0
-1.0
-1.0
-1.0

0
-1.0
-1.0
-1.0
-1.0

0
-1.0
-1.0
-1.0
-1.0

0
-1.0
-1.0
-1.0
-1.0

0
-1.0
-1.0
-1.0
-1.0

0
-1.3
-1.3
-2.1
-2.1

0
0
0
0
0
0
0
-0.7 -0.25 -0.25 -0.25 -0.25 -0.25 -0.25
-0.7 -0.25 -0.25 -0.25 -0.25 -0.25 -0.25
-2.0 -1.5 -1.0 -0.5 -0.25 -0.25 -0.25
-2.0 -1.5 -1.0 -0.5 -0.25 -0.25 -0.25

0
-1.2
-1.2
-2.7
-2.7

0
-0.6
-0.6
-2.1
-2.1

0
0
0
-2.0
-2.0

0
0
0
-1.5
-1.5

0
0
0
-1.0
-1.0

0
0
0
-0.5
-0.5

0
0
0
0
0

0
0
0
0
0

0
0.2
0.2
0.2
0.2

0
0.2
0.2
0.2
0.2

0
0.2
0.2
0.2
0.2

0
0.2
0.2
0.2
0.2

0
0.2
0.2
0.2
0.2

0
0.2
0.2
0.2
0.2

0
0.2
0.2
0.2
0.2

0
0.2
0.2
0.2
0.2

Source: Bruegel. Note: SB=structural budget balance. BB=headline budget balance. The output gap and the SB
are expressed as percent of potential GDP, while the BB and NGEU are expressed as percent of actual GDP. May

23

2021 European Commission forecast for 2019-2022 for SB and BB and for 2019-2025 for the output gap; light
red: excessive deficit procedure; light blue: preventive arm below the MTO; green: preventive arm at or above
MTO (no fiscal adjustment requirement). Regarding the time profile of NGEU, the RRF time profile is included
only in the submitted plans of Belgium, Czechia, Denmark, Estonia, Germany, Hungary, Spain and Sweden and
we use these time profiles. For the other components of NGEU in the cases of these countries, and all components
of NGEU for the other three countries, we use the time profile derived from European Commission (2020) – see
Darvas (2020). For NGEU loans, we consider the actual amounts requested by Cyprus, Greece, Italy, Poland,
Portugal, Romania and Slovenia.

24

Table A3: Compliance with the 1/20th debt reduction rule in our scenarios
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
historical scenario yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
flexible scenario no
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
Belgium
historical scenario no
no
no
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
flexible scenario no
no
no
no
no
yes
yes
yes
yes
yes
yes
yes
yes
Bulgaria
historical scenario debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
flexible scenario debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
Croatia
historical scenario no
no
no
no
no
yes
yes
yes
yes
yes
yes
yes
yes
flexible scenario no
no
no
no
no
no
yes
yes
yes
yes
yes
yes
yes
Cyprus
historical scenario yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
flexible scenario no
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
Czechia
historical scenario debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
flexible scenario debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
Denmark
historical scenario debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
flexible scenario debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
Estonia
historical scenario debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
flexible scenario debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
Finland
historical scenario yes
yes
yes
yes
yes
yes
yes
debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
flexible scenario yes
yes
yes
yes
yes
yes
yes
debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
France
historical scenario no
no
no
no
no
no
no
no
no
no
no
no
no
flexible scenario no
no
no
no
no
no
no
no
no
no
no
no
no
Germany
historical scenario yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
debt<60 debt<60 debt<60
flexible scenario yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
debt<60 debt<60
Greece
historical scenario no
no
no
no
no
no
no
no
no
no
yes
yes
yes
flexible scenario no
no
no
no
no
no
no
no
no
no
yes
yes
yes
Hungary
historical scenario yes
yes
yes
yes
yes
yes
yes
debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
flexible scenario yes
yes
yes
yes
yes
yes
yes
yes
debt<60 debt<60 debt<60 debt<60 debt<60
Ireland
historical scenario debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
flexible scenario debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
Italy
historical scenario no
no
no
no
yes
yes
yes
yes
yes
yes
yes
yes
yes
flexible scenario no
no
no
no
no
no
no
no
yes
yes
yes
yes
yes
Latvia
historical scenario debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
flexible scenario debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
Lithuania
historical scenario debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
flexible scenario debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
Luxembourg historical scenario debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
flexible scenario debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
Malta
historical scenario yes
yes
yes
yes
yes
yes
debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
flexible scenario no
yes
yes
yes
yes
yes
yes
yes
debt<60 debt<60 debt<60 debt<60 debt<60
Netherlands historical scenario debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
flexible scenario debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
Poland
historical scenario debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
flexible scenario debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
Portugal
historical scenario no
no
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
flexible scenario no
no
no
no
yes
yes
yes
yes
yes
yes
yes
yes
yes
Romania
historical scenario debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
flexible scenario debt<60 debt<60 no
no
yes
yes
yes
yes
yes
debt<60 debt<60 debt<60 debt<60
Slovakia
historical scenario debt<60 yes
debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
flexible scenario debt<60 no
yes
yes
yes
debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
Slovenia
historical scenario no
yes
yes
yes
yes
yes
yes
yes
yes
debt<60 debt<60 debt<60 debt<60
flexible scenario no
no
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
debt<60
Spain
historical scenario no
no
no
no
yes
yes
yes
yes
yes
yes
yes
yes
yes
flexible scenario no
no
no
no
no
no
no
no
yes
yes
yes
yes
yes
Sweden
historical scenario debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60
flexible scenario debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60 debt<60

Austria

Source: Bruegel. Note: the rule is assessed for each year in a forward-looking manner, that is, whether the
expected average annual decline in the debt ratio from year t to t+3 is equal to or larger than 1/20th of the gap
between the debt ratio and the 60% of GDP benchmark in year t. This rule applies to countries with debt ratios
over 60% of GDP in the preventive arm. Light red: excessive deficit procedure; light blue: preventive arm with
structural balance below the MTO; green: preventive arm with structural balance at or above MTO (no fiscal
adjustment requirement). France is expected to comply with the rule in 2042 in our flexible scenario.

25