The president of the European Central Bank, Christine Lagarde, called on eurozone countries to better combine debt reduction with productive investments, warning of the risk of “budgetary stagnation”.
“Public debt levels in the euro zone remain high and need to decrease,” said Lagarde in a speech in Vienna, Austria, at a time when France appears to have great difficulties in having a budget in 2026.
According to Lagarde, the main challenge “is not that governments generally do not comply with budgetary rules”, but that they must “give more importance to spending that supports potential growth and essential strategic priorities, while also sanitizing public finances”.
Today, only a handful of countries in the euro zone, including France and Italy, take advantage of the possibility, offered by European rules, of extending the fiscal adjustment period to up to seven years, as long as they invest in structural reforms and projects that increase productivity, according to Lagarde.
The priority given more frequently to current expenses is explained by the “pressure to preserve the European social model and to support aging societies in the short term”, he highlighted.
On the other hand, the lack of investment can cause “budget stagnation”, where sanitation measures weaken growth, requiring even more fiscal austerity, a “vicious circle”, according to the former IMF director.
To avoid this obstacle, it would be better to use the flexibility of European rules, redirecting spending towards education, research and productive investment.
Another path suggested by Lagarde is to mutualize certain strategic expenses at European level, namely in research and development, favoring innovation, and in defense, to “dissuade hostile actors”.