Midsummer musings: Rising energy prices and mounting evidence of pipeline price pressures suggest that the ECB‘s job is not done yet. At the July meeting, we expect the GC to leave rates unchanged while emphasising its readiness to act. We continue to expect a final 25bp ra

Research evidence excerpt

Midsummer musings: Rising energy prices and mounting evidence of pipeline price pressures suggest that the ECB‘s job is not done yet. At the July meeting, we expect the GC to leave rates unchanged while emphasising its readiness to act. We continue to expect a final 25bp ra

lying demographic-driven trend; local

government spending evolves in line with historical patterns; pre-committed ministerial

expenditure follows existing multi-annual programming laws; other spending grows broadly in

line with the government's estimate of nominal potential GDP growth; and temporary revenue

measures expire as scheduled. As such, should a budget be adopted, the government will first

need to offset a range of unfavourable spending and revenue dynamics before even considering

any reduction in the headline deficit ratio.

Looking ahead, extending the same assumptions through to 2030, the expert committee

estimates that the general government deficit would widen further to 6.8% of GDP, while the

debt-to-GDP ratio would rise to around 130%. This deterioration reflects the combination of a

persistently large primary deficit and unfavourable debt dynamics with the effective interest

rate on public debt exceeding nominal GDP growth. These projections are broadly consistent

with the medium-term simulations we have conducted using our own macro-fiscal assumptions

for 2026-27 and the European Commission’s Debt Sustainability Monitor assumptions for the

2028-35 period (Figure 4).

In this context, the committee estimates that a structural primary adjustment of around €100bn

would be required to stabilise the debt ratio by 2032, overall in line with our own

calculations (which pointed to an adjustment of around 3pp of GDP, or approximately €90bn in

2025 euros).