Budgetary Balances in Europe

key terms

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common currency

deficit bias

monetary union



European nations face many challenges in maintaining strong budgetary positions. Though maintaining strong budgetary positions is important and challenging for any individual country, members of a monetary union must also be concerned and aware of each other’s budgetary positions. Weakness in one member’s budgetary position could cause problems for other members through its effects on the common currency. In addition, the possibility of weak budgetary positions in a monetary union is greater because of the risk of moral hazard in the budgetary process.

Outlined below are budgetary problems that European governments have inherited, as well as some looming budgetary problems. Some of the efforts to overcome these difficulties are also presented.


Working solutions:


Looming problems:

Even as the structure of budgets has improved across Europe, there are areas of the budget that have the potential to cause large deficits in the future if not addressed. The areas of greatest concern are

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