Debt Sustainability Monitor 2025

The Debt Sustainability Monitor (DSM): a key publication for fiscal surveillance

The DSM plays an important role in identifying fiscal sustainability risks in EU Member States. It assesses risks in the short, medium and long term, and discusses a wide range of additional risk factors. This is an important input to the European Semester. The 2025 DSM is based on the Commission 2025 autumn forecast and incorporates the ageing cost projections from the 2024 Ageing Report. Methodological details are available in the annexes, ensuring transparency.

The DSM is descriptive, not prescriptive. It does not make recommendations on what fiscal policy should do but assesses the implications of unchanged policy for the debt dynamics over the medium term, through its debt sustainability analysis (DSA). The DSM also gauges the long-term impact on debt of the projected change in ageing-related expenditure, given the initial budgetary conditions. The findings are reported both in horizontal chapters organised by time horizon and in 27 country fiches.

The role of the DSA has expanded with the reformed EU fiscal framework, in that case for a normative use. The Commission’s DSA-based methodology has an increased role in fiscal surveillance, as the anchor to compute prior guidance and assess Member States’ medium-term plans. It can also have a direct role in certain procedures, for instance to ensure that activating the national escape clause preserves fiscal sustainability and to compute corrective paths under the excessive deficit procedure. 

While the methodologies used in the DSM and for the EU fiscal framework are closely linked, their aim differs substantially. The standard DSA of the DSM assumes unchanged policy, taking the budgetary position as given, and assesses the risks it implies for fiscal sustainability. Under the EU fiscal framework, the DSA-based approach is used in reverse to define fiscal adjustment paths so that fiscal sustainability is ensured. 

One DSA methodology, two approaches

Structure of the 2025 Debt Sustainability Monitor

Main findings of the 2025 DSM

Short-term risks are mainly related to how much money governments will need to raise from the financial markets or other sources in the next two years, and at what cost. Financing needs are expected to remain elevated in Belgium, France, Italy and Finland, mostly due to maturing debt and budget deficits. Despite downgrades for some countries, financial markets’ perception remains overall favourable, and all Member States now have investment-grade sovereign credit rating.

Medium-term risks are assessed using the DSA. This consists in projecting government debt over the next 10 years, in the absence of new policy measures beyond 2026 and based on reasonable macroeconomic assumptions as well as under possible shocks. At unchanged fiscal policy, debt in the EU is projected to increase, and 12 countries are found to be at high risk, mostly because their debt-to-GDP ratio would be high and/or increasing. 

Long-term risks reflect the theoretical fiscal effort required to ensure that debt has desirable features in the long term: it stabilises and it respects the Treaty reference value of 60% of GDP. This is measured by the “debt-stabilisation indicator”, S2, and the “debt-reduction indicator”, S1. High risk in 6 Member States stems from projected increasing trends in ageing-related expenditure (on pensions, healthcare and long-term care) and high initial levels of deficit or debt. 

Additional factors may aggravate or mitigate risks. First, the structure of the debt (e.g. by maturity and holders) matters, for instance the investor base remains large, diversified and mainly domestic. Second, public finances are exposed to the possible materialisation of certain events via contingent liabilities. Third, governments also hold assets, qualifying the “gross debt” approach by a “net debt” approach. Fourth, climate change is a source of concern also for public finances.

Turning to developments under the EU fiscal framework, the national escape clause allowing an increase in defence expenditure was activated only provided that debt sustainability over the medium term would be preserved. Moreover, simulations shows that if Member States implement the adjustment path from their medium-term plan until the end, the aggregate debt-to-GDP ratio in the EU in 2036 would be more than 20 pps. lower than under current policies. 

Government debt projections

Information and identifiers

Institutional Paper 332. February 2026. Brussels. PDF. 304pp. Tab. Graph. Bibliogr. Free.

KC-01-25-086-EN-N (online) 
ISBN 978-92-68-35315-8  (online)
ISSN 2443-8014 (online)
doi:10.2765/5547996 (online)

JEL classification : E62, H3, H6, J1

Disclaimer

European Economy Institutional Papers are important reports analysing the economic situation and economic developments prepared by the European Commission's Directorate-General for Economic and Financial Affairs, which serve to underpin economic policy-making by the European Commission, the Council of the European Union and the European Parliament. Views expressed in unofficial documents do not necessarily represent the views of the European Commission.