Europe Fiscal Policy From Cheap Debt to Hard Choices

European fiscal policy is shifting toward hard choices as structural spending pressures rise. The report recommends gradual spending freezes and growth-enhancing reforms over aggressive austerity.

Key Takeaways

• 1.Europe faces structural spending pressures from ageing, defence, and interest costs, necessitating a shift from cheap debt to hard fiscal allocation.
• 2.Gradual spending freezes on low-multiplier expenditures are a more viable path for fiscal consolidation than outright cuts or aggressive tax hikes.

Table of Contents

• The Story in Numbers
• Executive Summary: From Cheap Debt to Hard Choices
• Europe's Fiscal Policy in 6 Charts
• Three Structural Spending Pressures: Ageing, Defence, Interest Payments
• The Policy Dilemma and Possible Paths Forward
• EU Fiscal Rules: Constraints and Funding Options
• The Debt Outlook Absent Policy Change
• Rates Strategy: How Fiscal Policy Impacts Bond Markets
• FX Strategy: Growth Is What EUR Looking For
• Equity Strategy: The Transmission Mechanism
• Aerospace & Defence: The Need for Higher Defence Spending
• Financials: SIU – helping lower government debt, increasing households' wealth & fostering innovation
• Appendix: Fiscal Policy Explainer

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