IMF Warns Of Rising EU Debt Risks

• IMF warned EU debt could hit 130% of GDP.
• Greece and Italy remain Europe’s most indebted economies.
• Aging populations and defense costs drive fiscal pressures.
• Joint EU borrowing remains deeply politically divisive.

In a policy paper discussed during an informal meeting of EU finance ministers in Nicosia, the IMF said average public debt across Europe could rise to 130% of GDP by 2040 under current policies, nearly double present levels.

The Fund urged EU governments to deepen market integration, reform labour and pension systems, and consider joint borrowing for strategic sectors including defence and energy.

The IMF said Europe’s fragmented energy systems, ageing population, weak productivity growth and growing geopolitical pressures were increasing fiscal risks across the 27-member bloc. The institution warned that gradual “muddling-through” policies would no longer be sufficient to stabilize debt levels.

Euro area government debt stood at 87.8% of GDP at the end of 2025, according to official Eurostat data, while the EU-wide deficit reached 3.1% of GDP, above the bloc’s long-standing fiscal benchmark.

Joint borrowing remains politically divisive inside the EU. Countries including France, Italy and Spain support common debt instruments similar to the bloc’s pandemic recovery fund, while Germany and several northern European states oppose further fiscal mutualisation over concerns about long-term liabilities and budget discipline.

“This is one of those areas where there are differences of opinion, but it’s certainly one of ‌the areas which we will be discussing in the ​coming months,” the chairman of euro zone finance ministers ​Kyriakos Pierrakakis told Reuters.

Countries With the Highest Debt Levels in the EU

According to Eurostat data released in April 2026, Greece recorded the highest government debt-to-GDP ratio in the European Union at 146.1%, followed by Italy at 137.1%, France at 115.6%, Belgium at 107.9% and Spain at 100.7%.

Italy is projected to overtake Greece as the euro zone’s most indebted major economy by the end of 2026, according to Italian budget projections and Greek fiscal estimates reviewed by Reuters. Italy’s debt ratio is expected to rise to 138.6% of GDP in 2026 while Greece’s debt burden continues declining due to stronger economic growth and early debt repayments.

France has also faced growing debt pressures linked to persistent fiscal deficits and rising borrowing costs. Eurostat data showed France maintained one of the largest public debt burdens in the bloc despite post-pandemic economic recovery measures.

European Commission data showed several lower-debt EU economies, including Estonia, Luxembourg, Denmark and Bulgaria, maintained government debt levels below 30% of GDP in 2025, highlighting widening fiscal divergence within the bloc.

What Is Driving Europe’s Debt Burden

The IMF and OECD attribute Europe’s rising debt levels to long-term pressures including ageing populations, rising pension and healthcare costs, higher defence spending and climate-transition investment needs. IMF projections show euro zone public debt remaining above 88% of GDP, while the European Commission estimates climate-transition investments alone could require about 620 billion euros annually through 2030.

The COVID-19 pandemic sharply increased borrowing across Europe after governments introduced large-scale stimulus programs, wage subsidies and emergency energy support measures. Subsequent geopolitical shocks, including Russia’s invasion of Ukraine and instability in the Middle East, further increased military and energy-security spending.

Higher global interest rates have also sharply increased debt-servicing costs. The OECD said government interest payments across advanced economies rose to about 3.3% of GDP, the highest level since 2007, while refinancing risks intensified as large volumes of low-interest debt matured.

The IMF additionally warned that Europe’s fragmented capital markets, uneven labour mobility and differing national regulations continue to weaken productivity growth and reduce the bloc’s ability to finance large strategic investments efficiently. The Fund said deeper financial integration and unified investment frameworks could improve long-term fiscal sustainability.

“The ‘muddling-through’ approach that many countries have adopted so far is reaching ​its limits, and a more ‌strategic response seems essential to respond to rising spending pressures,” the IMF said.

“Making changes ​in a piecemeal way, or tinkering at the margins, is likely to be inadequate,” ​it said, Reuters reported.

Despite growing fiscal concerns, EU officials say coordinated reforms, stronger economic integration and targeted investment could help stabilize public finances while supporting long-term growth, energy resilience and industrial competitiveness across the bloc.