From stability to risk: Trajectories of fiscal sustainability in the European Union

Abstract

This paper analyses the fiscal sustainability of European Union member states during the period 2015–2024 by applying three core indicators (S0, S1, and S2) published by the European Commission, which capture short-, medium-, and long-term risks. The study combines descriptive analysis, trend assessment, principal component analysis (PCA), and the construction of a synthetic fiscal sustainability index. This multidimensional approach allows us to identify systematic differences among countries, to evaluate their trajectories over two sub-periods (2015–2018 and 2019–2024), and to assess the impact of the COVID-19 pandemic and the energy crisis on fiscal positions. The findings reveal that while short-term risks remain relatively stable across the EU, medium-and long-term risks diverge significantly, with Slovakia, Hungary, and Romania among the most vulnerable, and Nordic countries and Germany maintaining stable positions. The proposed index complements PCA and offers policymakers a transparent tool for identifying high-risk countries. The novelty of the study lies in integrating PCA on both levels and trends of S0–S2 with a newly developed synthetic index, enabling a more nuanced detection of fiscal sustainability trajectories before and after the pandemic.