BRUSSELS, (Pakistan Point News - 22nd Jun, 2026) Climate-related disasters are affecting the public budgets of a number of European Union countries, with government spending replacing low insurance coverage in a context of more frequent and intense extreme weather in the future, according to a report by Brussels-based economic think tank Bruegel.
Climate impacts are no longer a marginal or far-future risk, but a structural macro-fiscal problem today. They will rapidly get more expensive in Europe because it is the world’s fastest-warming continent. Between 1980 and 2024, direct economic losses in the European Union arising from weather- and climate-related extremes amounted to €822 billion, with a quarter of the damage occurring in the last four years of the period.
Moreover, these estimates only include direct damage, such as the destruction of infrastructure and housing, not indirect costs, such as lower output and productivity or increased healthcare costs.
The experience of the direct costs from floods and droughts in six EU countries between 2021 and 2024 demonstrates the extent to which fiscal costs are affected by reliance on ad-hoc allocations from public budgets after such events. Fewer losses would fall on the state if private insurance played a bigger role and if governments invested more in prevention, adaptation and public risk financing.
The "integrated framework for European climate resilience and risk management" under preparation by the European Commission can help to manage the fiscal risks.
This includes establishing national and European plans that foster proactive public and private adaptation, with incentives for preventive investments and avoidance of state bailouts following disasters; narrowing the climate insurance protection gap so public budgets act less as the insurer of last resort; incentive-compatible government relief funds with ‘build-back-better’ conditions for all reconstruction projects; and coordination of adaptation investment and potentially risk-pooling across the EU.
Additionally, the integration of resilience into EU economic governance, with the creation of a European risk-sharing instrument that builds on EU disaster funds and a governance framework for adaptation finance.
