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Early warning indicators for fiscal stress in European budgetary surveillance

The sovereign debt crisis has demonstrated that fiscal sustainability concerns can become virulent not only in the long run, but also in the short run. In the medium to long term, the assessment of a government’s solvency is crucial. Solvency requires a government’s inter temporal budget constraint to be fulfilled, meaning that the net present value of its future primary balances must be at least as high as that of outstanding government debt.[...]