Risks to public finances

Insight and control

The risks to public finances have increased in recent years but they are not periodically and comprehensively mapped out. The House of Representatives therefore cannot see at a glance what risks public finances are facing, their potential consequences and how they can be controlled. This report and the accompanying diagrams are a first step towards a more comprehensive understanding of the situation.


The House of Representatives currently does not receive periodic and full information on the risks to public finances and the ability to control them. In this report and the accompanying tables we present a first initiative to provide such information on the European guarantees, the financial sector, the housing market, industry, the healthcare sector, pensions and the economy. We found that risks can occur in a variety of ways: 

  • by shock, as in the case of guarantees; 
  • by stealth, as in the case of long-term expenditure on health and pensions;
  • 'elastically', as in the relationship between the economy and public finances. 

We also found that the occurrence and potential consequences of a number of risks were interrelated.

It also emerged from our analysis that the size of the risks to public finances had increased substantially in a number of areas in recent years: 

  • Since the outbreak of the credit crunch, explicit government guarantees nearly doubled from 42% of GDP in 2008 to 77% in 2011 (about €465 billion). In addition, the government has extended implicit guarantees to institutions in the financial sector, some of which are so big and complex that the entire financial system would be at risk if they were to collapse. 
  • Expenditure on healthcare and pensions has risen faster than foreseen. According to recent estimates, healthcare expenditure will increase from 6% to 18% of GDP between 2010 and 2040. Expenditure on state pensions is expected to increase by 3.4% of GDP between 2012 and 2040. The government also runs an indirect investment risk on non-state pensions. 
  • Economic growth prospects have deteriorated since 2008 and public finances have become more sensitive to the economic cycle in recent years. Public debt has risen sharply since 2008 and the government is less able to withstand the risks.


We recommend that the Minister of Finance:

  • periodically and comprehensively map out the risks to public finances and the ability to control them;
  • carry out stress tests of public finances;
  • systematically evaluate the need and benefit of assuming new risks and increasing existing risks;
  • periodically reconsider risks already assumed;
  • inform the House of Representatives of the effectiveness of guarantees given;
  • develop strategies to reduce government guarantees.


In response to our recommendations, the Minister of Finance wrote that several analyses were already being carried out of the government's financial position and risk exposure. He also observed that we correctly called for attention to be paid to risk management. The government has taken important steps to improve risk management and has tightened up its policy on guarantees. Spending cuts and reforms should create room in the budget to absorb uncertainties, shocks and long-term trends. The minister made no undertakings regarding our recommendation that the House of Representatives be periodically and comprehensively informed of the risks to public finances. We would again stress the importance of doing so given the unpredictability of new shocks and developments in public finances.