Europe stands at perhaps the most difficult crossroads of recent times, a tough call to make between social welfare and stabilizing fiscal balance. On 4 November 2025, the IMF issued a warning, citing the deep fiscal troubles the EU is facing and how the situation is likely to worsen if immediate and more decisive steps are not taken. The rising debt levels, which could double to 140% by 2040, as suggested by the IMF, pose an imminent threat to disturbing the existing fragile balance between revenue and expenditure. Funding various social schemes, including pensions, unemployment benefits, healthcare, and education, has long been a mainstay of government policies across the EU. Now, the IMF calls for a re-evaluation of those spending policies. The message is clear: harsh measures are crucial now to have a better future. Across Europe, governments have already joined the austerity drive. For the last 18 months, the EU has been experimenting with various ideas as part of a strict fiscal policy aimed at restoring the budgetary balance. Below is a list of measures adopted across the EU countries:

• Raising the statutory retirement age.
• Freezing or delaying pension indexation.
• Limiting the duration of unemployment benefits.
• Reducing public-sector wage growth or hiring.
• Cutting healthcare and education budgets.
• Phasing out early-retirement schemes.
• Increasing consumption or environmental taxes.
• Reducing energy or transport subsidies.
• Capping family and housing support payments.
• Restricting public investment spending.

These measures have either been implemented/approved, or are currently under parliamentary debate. As policymakers adjust the policy machinery to cope with an impending economic peril, implementations are faced with a formidable opposition from the affected groups. In fact, over the last two months, a wave of rising resentment has been evident. Belgium, France, Germany, Italy, and more have all witnessed nationwide strikes, and many more are likely to follow.

Although cutting public spending might seem like a straightforward solution to rectify the current fiscal imbalance from the government’s perspective, the situation is not entirely linear. Cutting public funding, such as pensions, social benefits, or unemployment funds, reduces the disposable income of the impacted groups. Low disposable income means lower consumer demand. With demand spiraling downward, supply needs to be downsized as well, following a fundamental economic principle that matches market demand. As a result, businesses respond with layoffs, further reducing tax revenues and pushing up unemployment levels. In short, economies can face a self-perpetuating cycle that widens inequality and, even worse, triggers an economic recession (something the world witnessed in the 1930s – The Great Depression).

Furthermore, a reduction in expenditure on human infrastructure, whether in health or education, has a long-term negative impact on the economy. The immediate effect could be a robust balance sheet and good fiscal ratios. In the longer run, it weakens the foundation for sustainable growth, something which the EU stands for and identifies with. Decline in human capital, lack of innovation and global competitiveness, brain drain, social inequality, and other issues are a few notable consequences. Excessively rigid austerity measures, in a way, can undermine growth and social cohesion.

The IMF’s warning, therefore, should not be examined in a single dimension. Instead of treating it as a call to cut, it can be perceived as an invitation to rethink how Europe balances its books while safeguarding its people.

The solution lies in achieving a balance:

According to Friedrich Ebert Stiftung’s “Alternative to Austerity”, if fiscal strategies are growth-oriented, rather than simply focusing on cutting expenditure, a balance can be reinstated without impacting the welfare. Budgetary discipline will have to be achieved through the use of a balanced mix of responsible budgeting and investing public funds wisely. Pumping investments into areas such as infrastructure, education, and green technology can help countries build strong and sustainable economies, as well as secure their futures. These investments can help create more jobs, improve skills, and support long-term growth. It also calls for a fairer tax system where the wealthy and large companies contribute more, reducing the pressure on working families.

The problem the EU is facing at this moment goes beyond the budget. The challenge is about protecting fairness and dignity. Financial discipline should always go hand-in-hand with social justice.

The goal should not be to weaken the social support systems people depend on, but to strengthen and make them more sustainable, so that growth and fairness work together, rather than against each other.

Reference Links:

politico.eu/article/police-cla… | archive.ph/pYghC

euronews.com/2025/09/24/french… | archive.ph/JetNb

berlintoday.com/public-sector-… | archive.ph/8ZdCM

european-pirateparty.eu/are-eu…