As the euro area grapples with the Covid19 aftermath and an ongoing war at the gates, one should not lose sight of longer-term challenges to fiscal sustainability. The main risks to long-term sustainability come from:

  1. climate change
  2. ageing transition
  3. inequality
  4. trade block fragmentation


Climate change has emerged as a main challenge to the health of public finances, already having an effect on growth and public spending. The impact is likely to increase with the severity of the shocks, and mitigation and adaptation needs.
This is exacerbated by an aging population, and an inverted demographic pyramid, where people save more and work longer. Longer life expectations also lead to higher health costs, with social security becoming an almost unsustainable burden in countries with unfunded systems. Migration could help alleviate demographic pressures, but not until migrants become net contributors to the European social welfare states.

Inequality is already a challenge, likely to intensify. The gap between returns to capital and labour has opened up, and the ensuing higher savings contributed to push interest rates down. Purchasing power and aggregate demand could further suffer as the middle class thins out.

Trade fragmentation and re-shoring could boost growth in the short term, but also raise costs and constrain efficient business decisions with negative longer-term growth effects.

The European Stability Mechanism (ESM) in cooperation with ADEMU is organizing a seminar to discuss the implications of these risks and their interactions to fiscal sustainability and identify policy measures and reforms to help alleviate their negative impact of growth and public finances.


Objectives of the seminar:

  • Exchange views on the main long-term risks and their interactions for growth and fiscal sustainability
  • Discuss policy implications and challenges for national governments and European institutions


Irene Monasterolo, Programme Director, EDHEC-Risk Climate Impact Institute, will discuss climate change in the "The bumpy road ahead" session, together with Paul Hiebert, Head of Systemic Risk & Financial Institutions Division (European Central Bank) and Stavros Zenios, Professor (University of Cyprus). The session will be chaired by Giovanni Callegari, Head of Economic and Risk Analysis (European Stability Mechanism - ESM).




Further information on hybrid conference can be found here.  


About European Stability Mechanism (ESM)

ESM is an intergovernmental organisation established by member states of the euro area in 2012. Its mission is to enable the countries of the euro area to avoid and overcome financial crises and to maintain long-term financial stability and prosperity.

The ESM carries out this mission by providing loans and other types of financial assistance to member states that are experiencing or are threatened by severe financial distress. In other words, the ESM acts as a “lender of last resort” for euro area countries when they are unable to refinance their government debt in financial markets at sustainable rates.

In this role, the ESM is the successor to the European Financial Stability Facility (EFSF), a temporary institution created in 2010. Both institutions played a crucial role in preserving the integrity of the euro area during the euro debt crisis, by providing a total of €295 billion in loans to five countries (Ireland, Portugal, Greece, Spain, and Cyprus). As part of their ESM/EFSF programmes, these countries implemented reforms to address the weaknesses that led to economic and financial problems.