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

Author

Listed:
  • Alessandra Cepparulo
  • Vito Ernesto Reitano

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

Suggested Citation

  • Alessandra Cepparulo & Vito Ernesto Reitano, 2025. "An Assessment of the Euro Area Fiscal Stance in 2025 and 2026, Considering the Flexibility for Higher Defence Spending," European Economy - Economic Briefs 085, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    • Handle: RePEc:euf:ecobri:085
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    File URL: https://economy-finance.ec.europa.eu/document/download/a0a12bd1-2d85-43f2-a49f-03e8bf58f2b2_en?filename=eb085_en_0.pdf
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    References listed on IDEAS

    as
    1. Alessandra Cepparulo & Guillaume Cousin & Allen Monks & Vito Ernesto Reitano, 2024. "An evolving euro area policy mix," Quarterly Report on the Euro Area (QREA), Directorate General Economic and Financial Affairs (DG ECFIN), European Commission, vol. 23(2_3), pages 61-77, December.
    2. Alessandra Cepparulo & Clíona McDonnell & Vito Ernesto Reitano, 2024. "An Assessment of the Euro Area Fiscal Stance since the Pandemic," European Economy - Economic Briefs 080, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
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    More about this item

    Keywords

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    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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