Debt burdens will constrain fiscal policy for years

The goal of keeping government debt ratios stable or falling means that many euro-zone countries will need to tighten fiscal policy substantially and some will need to run primary budget surpluses for a long time to come. Italy has the most challenging fiscal situation but the other southern economies and France and Belgium may also need to reduce their deficits significantly. This could contribute to weak aggregate demand and supports our view that growth prospects for the euro-zone are relatively poor.