Euro Area Stability Watch 2026
Global shocks, domestic shields: Resilience under strain
The Euro Area Stability Watch provides an integrated assessment of macroeconomic and financial risks in the euro area, highlighting their implications for public finances and sovereign debt markets.
Highlights
Geopolitics dominate the risk outlook
77% of respondents of the ESM Sovereign Sentiment Survey mentioned geopolitics as a key risk
Spillover from US financial markets
46% of euro area GDP invested in US equity and debt securities
More price-sensitive investors in sovereign markets
27% holdings of euro area debt by foreign investors
Adverse scenario: GDP nears recession and inflation soars
0.1% average GDP growth in 2026–2027
High debt and rising spending pressures constrain policy choices
123% of GDP, euro area public debt in 2035 under the adverse scenario
Well-designed defence spending can reduce its fiscal cost up to:
53% of total spending in the long term
Multimedia content
Foreword
