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Government debt dynamics in the EU after the pandemic: the role of the snowball effect

Author

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  • Mislav Brkic

    (Croatian National Bank, Zagreb, Croatia)

Abstract

The COVID-19 pandemic and the subsequent economic recovery had a strong impact on government debt dynamics in the EU. This paper focuses on fiscal developments in the period 2021-2023, when the economic crisis triggered by the pandemic had already passed. In particular, it aims to determine whether the rapid reduction in government debt ratios in that period was driven by member states’ primary surpluses or a favourable snowball effect - the positive difference between member states’ nominal growth rates and the average interest rates on their debt. The analysis clearly reveals that the snowball effect was the key factor behind the favourable trend in debt ratios. The paper also discusses the challenges and adverse shocks that the EU faced in the post-pandemic period, which put pressure on national budgets and thus contributed to the persistence of primary deficits in that period.

Suggested Citation

  • Mislav Brkic, 2026. "Government debt dynamics in the EU after the pandemic: the role of the snowball effect," Public Sector Economics, Institute of Public Finance, vol. 50(3), pages 329-350.
    • Handle: RePEc:ipf:psejou:v:50:y:2026:i:3:p:329-350
    DOI: 10.3326/pse.50.3.1
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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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