Title page 1

Contents 3

Key Messages 4

1. Macroeconomic situation and outlook 5

2. Fiscal policy developments 7

3. Fiscal implications of the ReArm Europe initiative 10

Annex of Graphs 14

Key indicators for the euro area 22

Glossary 23

Graphs 5

Graph 1.1. Economic Policy Uncertainty Index for the United States of America 5

Graph 1.2. Differences in real GDP growth, euro area 6

Graph 1.3. Unemployment rate, euro area 6

Graph 2.1. The euro area aggregate fiscal stance 8

Graph 2.2. Fiscal impulse under different policy assumptions/recommendations in 2026; euro area aggregate 9

Graph 3.1. Eurostat and NATO definitions of defence expenditure, euro area NATO members 11

Graph 3.2. Defence expenditure increases in 2021-2024 and headroom to the maximum flexibility based on different calculation methods 12

Graph 3.3. Government debt ratio under different scenarios, 4 largest euro area countries 13

Annex Graphs 14

Graph 1.1/Graph 1.4. Nominal and real GDP growth, euro area 14

Graph 1.2/Graph 1.5. Euro area real GDP forecasts 14

Graph 1.3/Graph 1.6. Real GDP growth and its breakdown, euro area 14

Graph 1.4/Graph 1.7. Global trade volume 14

Graph 1.5/Graph 1.8. Inflation and wages, euro area 14

Graph 1.6/Graph 1.9. Economic survey indicators 14

Graph 1.7/Graph 1.10. Output gap, euro area 15

Graph 1.8/Graph 1.11. Cost of borrowing for households 15

Graph 1.9/Graph 1.12. Employment and total hours worked, euro area 15

Graph 1.10/Graph 1.13. Unemployment rate across Member States 15

Graph 1.11/Graph 1.14. Euro area Beveridge curve 16

Graph 1.12/Graph 1.15. Euro area labour force participation rate 16

Graph 1.13/Graph 1.16. Saving rate of households and NPISH, euro area 16

Graph 1.14/Graph 1.17. Services and Production Index, euro area 16

Graph 2.1/Graph 2.3. Drivers of the change in the general government budget balance; euro area aggregate 17

Graph 2.2/Graph 2.4. Government revenue and expenditure; euro area aggregate 17

Graph 2.3/Graph 2.5. Headline budget balance, euro area aggregate 17

Graph 2.4/Graph 2.6. Elements of the aggregate fiscal impulse 17

Graph 2.5/Graph 2.7. Fiscal stance, the structural primary balance; euro area aggregate 17

Graph 2.6/Graph 2.8. Fiscal impulse, change of the structural primary balance, euro area aggregate 17

Graph 2.7/Graph 2.9. Government debt levels 18

Graph 2.8/Graph 2.10. Drivers of government debt-to-GDP ratio; euro area aggregate 18

Graph 2.9/Graph 2.11. Fiscal stance and cyclical conditions across euro area Member States in 2025 18

Graph 2.10/Graph 2.12. Fiscal stance and cyclical conditions across euro area Member States in 2026 18

Graph 2.11/Graph 2.13. Fiscal impulse and cyclical conditions across euro area Member States in 2025 18

Graph 2.12/Graph 2.14. Fiscal impulse and cyclical conditions across euro area Member States in 2026 18

Graph 2.13/Graph 2.15. Overview: Expected national and aggregate fiscal impulse, stabilisation and sustainability - numbers do not yet reflect the draft budgetary plans... 19

Graph 3.1/Graph 3.4. Breakdown of defence expenditure by economic categories, euro area, in 2023 20

Graph 3.2/Graph 3.5. Commission forecast of defence expenditure 20

Graph 3.3/Graph 3.6. Full implementation of nominal increase in defence expenditure under the national escape clauses in 2026 - EFB reading of the March 2025... 20

Graph 3.4/Graph 3.7. Gradual nominal increase in defence expenditure under the national escape clauses in 2026 - EFB reading of the March 2025 communication... 20

Graph 3.5/Graph 3.8. Commission interpretation of the national escape clauses: the maximum expenditure increase in 2026 (100% take up in 2026) 21

Graph 3.6/Graph 3.9. Commission interpretation of the national escape clauses: gradual expenditure increase in 2026 (30% take up in 2026) 21