More investment desired, but within the budgetary space

Is this optimism justified? Indeed, few countries are in acute danger. This differs from the euro crisis, when countries like Greece and Cyprus lost independent access to the capital market. But in the medium term, serious problems can arise if debt and interest payments continue to rise. 

To prevent this, countries like Italy and Spain must implement a structural budget adjustment of about 3% of GDP through cuts or tax increases, a recent study shows. For Belgium, the necessary adjustment is about 4% of GDP, and for France 5%. These are very large adjustments – and this does not yet take into account the structural costs of higher defense spending and the energy transition. So it is not so much an unsustainable debt, but unsustainable budget policy.

More investment

Some experts propose a third way to achieve sustainable policy: more investment. Public investments, the reasoning goes, increase economic growth and pay for themselves. Many economists have long emphasized the importance of higher public investments. Some advocate changing national and European budget rules to allow borrowing extra for investments. Yet there are reasons to be skeptical about such an adjustment.

First, there is the question of what exactly counts as an investment. The official definition usually limits itself to physical capital goods, such as buildings, roads, cables. But the most profitable investments in the long term are probably those in education and knowledge, i.e., human capital. But isn’t healthcare also an investment in human capital? And social security? If we prevent children from growing up in poverty, society benefits for a lifetime. Safety, a well-functioning government, the rule of law: all essential conditions for future prosperity. Before we know it, every expenditure is called an investment and creative accounting becomes the norm.

Paying itself back

The second point is related. Certain expenditures have long-term benefits, but that does not mean they pay back in euros. Higher defense spending is very important for our security but does not necessarily lead to higher economic growth. The same applies to spending on the energy transition and health prevention. The benefits are mainly non-monetary: sustainability and better health, but they do not evidently lead to higher government revenues. 

Finally, even investments that do pay back and increase productivity are no guarantee of improved public finances. This seems counterintuitive: from Draghi to Wennink, it is stated that higher productivity growth is essential to continue funding our collective provisions. This overlooks the fact that these provisions are linked to the general welfare level. When labor productivity rises, wages rise, including those of people working in government, education, and healthcare. Benefits like the state pension (AOW) are linked to wage development, and healthcare demand grows faster when the economy grows faster. Productive public investments thus increase welfare broadly but do not automatically lead to a better government balance.

Future-oriented choices

It is important that European countries invest more again in projects with long-term returns. Not by placing them outside the budget, but by creating room within the budget. This can be done through reforms leading to a more efficient government and a healthcare system that focuses more sharply on appropriate care. And through political choices on themes such as working longer and higher taxes. There are no magic tricks to increase budget space: making future-oriented choices remains the best guarantee to avoid the next debt crisis. 

This essay by Pieter Hasekamp was also published on Friday, December 23, 2026, on the opinion page of Het Financieele Dagblad.