An Assessment of the Euro Area Fiscal Stance in 2025 and 2026, Considering the Flexibility for Higher Defence Spending

Alessandra Cepparulo and Vito Ernesto Reitano

No 85, European Economy - Economic Briefs from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: This Economic Brief analyses the euro area fiscal stance, i.e. the impulse that national and the EU budgets provide to the euro area economy, with a focus on the 2024-2026 period. Overall, after significant expansion in 2020-2023, the euro area fiscal stance turned contractionary in 2024, driven by lower capital transfers mainly due to the phase-out of large tax credits for housing renovations in Italy. Compliance with the recommended net expenditure paths would entail a slightly contractionary fiscal stance for the euro area in 2025 and 2026. However, the higher defence spending, including under the flexibility granted via the national escape clause, is expected to lead to a less restrictive fiscal stance

Keywords: Fiscal policy coordination; fiscal rules; fiscal stance; inflation; business cycles; automatic stabilisers; fiscal forecast; sovereign debt sustainability; euro area. (search for similar items in EconPapers)
JEL-codes: E61 E62 H50 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2025-07
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Persistent link: https://EconPapers.repec.org/RePEc:euf:ecobri:085

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