No signs of new EU debt crisis, but prudent fiscal policy is needed, Dombrovskis says
TLT•European Commissioner Valdis Dombrovskis said there are no signs of a new euro zone sovereign debt crisis, but governments should be prudent as borrowing costs and inflation expectations rise. France’s 2027 budget draft targets a deficit of 5.0% of GDP, down from an expected 5.4% this year.
1. Fiscal caution urged
Dombrovskis said governments need prudent fiscal policies as sovereign and corporate borrowing costs rise alongside inflation expectations. He said the advice to EU member states is consistent with advice the IMF gives to the broader international community.
2. French budget in doubt
France’s 2027 budget draft envisages reducing the deficit to 5.0% of GDP next year from 5.4% expected this year. Dombrovskis called the budget ambitious and said its timely adoption would provide clarity and stability about France’s fiscal outlook; campaigning ahead of next year’s April/May elections has cast doubt on its passage.
3. Debt maturity offers time
French 10-year bond spreads over equivalent German paper were near a record 140 basis points amid concerns about France’s debt and deficit and uncertainty over the budget. Dombrovskis said other EU countries also have debt problems, while the long average maturity of European sovereign debt gives governments time to act before higher yields translate into much higher debt-servicing costs.
