By 2040, the debt ratio is expected to double to 130%! The IMF calls on Europe to abandon the "patch-up job" and face the fiscal "hard choices" directly.

The International Monetary Fund (IMF) released a working paper on Monday, stating that if European countries cannot effectively manage public finances, their sovereign debt dynamics will face a serious risk of deterioration. The IMF research team, including economists Luke Erro, Mashika Gandhi, and Andrew Hodgson, pointed out in the paper that many countries are struggling to cope with the increasing challenges of an aging population, energy transition, and military restructuring, making the "band-aid" approach they have taken so far unsustainable. "If long-term spending pressures are not addressed, the debt dynamics of many European countries could slide into an uncontrollable explosive path," IMF analysts warned. "Given the scale of the adjustments needed, incremental patchwork solutions are unlikely to be sufficient to solve the problem, and may instead lead to 'reform fatigue'." This analysis adds to the many warnings recently issued regarding the fragility of European sovereign finances. Ten years ago, the European debt crisis once threatened to disintegrate the eurozone. Currently, countries such as the UK, France, and Belgium are particularly under scrutiny, as their government debt levels have reached or exceeded their respective GDP. IMF analysts called on political leaders to "switch to a more forward-looking and strategic strategy - combining reforms, fiscal consolidation, and deeper decisions on the scope and financing of public services when necessary." "The cost of delay is rising, and the benefits of a strategic path are becoming increasingly clear." IMF researchers estimate that by 2040, the average share of government spending as a percentage of total economic output will increase by nearly 5 percentage points, while economic growth is moderate and public acceptance of tax increases or large-scale spending cuts remains low. This will lead public debt to an unsustainable path, with the average debt-to-GDP ratio reaching 130% by 2040 - about twice the current level. A team of economists including Giacomo Magistretti, Ian Stewart, Mengxue Wang, and Jiae Yoo pointed out that a "mild" reform package could address about one-third of the fiscal gap, with pension reform and growth-promoting measures having the most significant positive effects. However, they added that most countries still need to push for fiscal adjustments. "Both are usually indispensable, and both involve difficult political choices," economists wrote. "The more in-depth the reform, the lighter the fiscal consolidation task may be, but reform alone is still not enough to eliminate fiscal sustainability risks." Some highly indebted countries may need to consider a more radical reassessment of the scope of public services. "Revisiting the government's role does not mean exiting or dismantling the European social model," IMF economists said. "It means pragmatically evaluating which services are best funded by the government, which can achieve higher efficiency or fairer financing through expanded private participation, and how to redistribute responsibilities among all parties." The paper pointed out that the relatively large government size, comprehensive welfare programs, universal health care, and free education characteristics that supported European growth, social cohesion, and stability post-World War II are now under pressure. The IMF, in its policy dialogues with governments, is increasingly dealing with more profound reform issues. The paper mentioned negotiations in Austria and Croatia regarding public wage expenditures; Belgium, France, and Norway have room for improvement in optimizing the targeting of social expenditures; and Germany, Slovakia, and Turkey have significant room to cut universal energy subsidies. "Fiscal choices will be increasingly constrained, contentious, and far-reaching," economists concluded. "Continuing to address these challenges in a scattered or passive manner - the 'barely coping' model that many countries have adopted so far - is approaching its limits."