Financing Investment in Times of High Public Debt by Floriana Cerniglia, Francesco Saraceno, and Andrew Watt

PART I. STATE OF THE ART

1. Europe
 Andrea Brasili, Atanas Kolev, Debora Revoltella, Jochen 
Schanz, and Annamaria Tueske

This chapter describes the dynamics of public investment over the review period 
and its likely path ahead. In 2022, public investment growth largely exceeded 
total expenditures growth, and it is set to increase further. The reinstatement 
of fiscal rules (after the deactivation of the General Escape Clause) would 
not necessarily lead to a decline in public investment thanks to the financial 
resources provided by the RRF. Meanwhile, there is some tentative evidence 
that high inflation and capacity constraints in the public administration are 
slowing the implementation of the RRF. Improving implementation capacity is 
key for the success of the existing plans and preserving absorption capacity for 
future investments is crucial for Europe to maintain a leading role in the needed 
digital, green, and energy transitions

1.1. Public Investment, Current Dynamics, and Plans 
Over the review period, the EU has had to respond simultaneously both to imminent 
and to long-term challenges: to lower inflation while preserving financial stability, 
to consolidate fiscal budgets while softening the effect of the energy and food price 
shocks, and to preserve energy security while accelerating the transition to climate 
neutrality.
 In its response to the last challenge, support for public investment plays 
a key role. Combining information from Eurostat, the Member States’ Stability and 
Convergence Programmes, the Recovery and Resilience Facility implementation, and 
the TED procurement database, this chapter provides an overview of public investment 
from various perspectives. The first section of this chapter describes the dynamics of 
public investment in Europe in 2022. In the last three years, public investment as a 
ratio of GDP increased to levels close to the pre-Great Financial Crisis average. In 2022, 
public investment growth largely exceeded total expenditures growth. According 
to Member States’ plans, the ratio will increase further, particularly in Southern 

Financing Investment in Times of High Public Debt by Floriana Cerniglia, Francesco Saraceno, and Andrew Watt