ECB Bulletin: Spain, Italy Debt Sustainable If Fiscal Targets Attained

ECB Bulletin: Spain, Italy Debt Sustainable If Fiscal Targets Attained


The debt-to-GDP ratio would be sustainable and fall at some point for both Spain and Italy, if the countries successfully achieve their fiscal consolidation targets, the European Central Bank said in its monthly bulletin released Thursday. A key driver of the results was the assumption that the governments concerned will achieve structurally balanced budgets in the medium term, as prescribed by the Stability and Growth Pact, the bank said in the report.
This assumption is key to ensuring that the debt-to-GDP ratio returns to a downward trajectory when the output gap closes. This also underlines the importance of governments living up to their commitments under the EU fiscal governance framework and delivering the required progress towards structural balance and corresponding primary surpluses.
"Failing to achieve this target will immediately give rise to substantial risks for debt sustainability," it warned.
The report added that the governments can influence long-term growth prospects by carrying out growth-enhancing structural reforms and they may have more positive effects on real GDP growth than assumed in the baseline, thereby improving the outlook for debt sustainability further.