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���������ֳ�’s Sector Outlook: Improving ���������ֳ� expects credit conditions for sovereigns in western Europe to improve in 2022. Fiscal balances are set to improve across all countries in the region, as steady growth supports revenues and pandemic-related support is wound down. In the short term, this is conducive to public debt stabilising or declining across most countries in the region. There is some divergence on medium-term fiscal strategies. The UK has rolled out concrete fiscal consolidation measures due to be introduced in 2022. In the eurozone (with few exceptions) there is more reluctance to announce tightening measures and the focus is instead on targeting higher growth to ensure debt/GDP ratios are placed on a firm downward path. Effective use of Next Generation EU (NGEU) funds will be key to this strategy in highly indebted countries. Rating Outlook Distribution The Rating Outlook situation has improved but remains tilted to the downside. Two sovereigns are on Negative Outlook and none has a Positive Outlook. Three Negative Outlooks – Belgium, San Marino and the UK – were revised to Stable in 2021 There has been one rating change: Italy was upgraded to ‘BBB’/Stable from ‘BBB-’, on the back of stronger than expected economic recovery and improving fiscal outturns. The two Negative Outlooks – France and Iceland – are mainly due to the uncertainty around the path of the public finances following the Covid-19 shock, which has left the public debt ratio substantially higher than pre-pandemic, and the lack of clarity on fiscal policy following elections.