Debt sustainability: structural differences between Northern bloc, Southern bloc and Eastern bloc in Europe

This article examines the current state of public debt across various blocs within the European Union (EU), particularly in light of the recent reform to the Stability Pact, enacted in April 2024. This reform strengthens the EU's capacity to enforce fiscal compliance among member states, aiming to harmonize public accounts and prevent a repeat of past sovereign debt crises. However, a single narrative on EU debt is inadequate given the distinct fiscal approaches among Northern, Southern, and Eastern European countries. The Northern bloc, including Germany and Sweden, is characterized by prudent fiscal management and robust institutional frameworks. Conversely, the Southern bloc, encompassing Greece, Italy, and France, struggles with high debt levels, often linked to expansive fiscal policies and structural economic challenges. The Eastern bloc, comprising emerging economies like Poland and Hungary, displays varied debt profiles reflective of post-communist economic reforms. This study categorizes EU countries into these three blocs, examining their distinct debt structures, fiscal policies, and economic foundations. Utilizing data on public debt, deficit levels, and foreign exchange reserves, it highlights the structural differences between these regions. Northern economies typically exhibit strong industrial sectors and positive trade balances, while Southern economies rely more on services and tourism, making them vulnerable to economic fluctuations. The Eastern bloc, meanwhile, occupies an intermediate position, with some countries showing competitive growth and others grappling with economic fragility. The analysis further explores the role of redistribution policies in debt accumulation, using per capita public spending data. Findings suggest that while redistribution contributes to public debt, high spending does not consistently correlate with elevated debt levels. Northern bloc countries, for instance, manage to sustain high public expenditures with relatively moderate debt increases, contrasting with the Southern bloc's reliance on debt to support similar policies. Ultimately, this article underscores the need for nuanced fiscal strategies tailored to the unique economic profiles within the EU, promoting fiscal stability while accommodating the diverse needs of its member states.