This Policy Brief examines the effects of macroeconomic and budget balance shocks on public debt trajectories in the euro area. A positive GDP shock leads to a persistent decline in the debt-to-GDP ratio, while a positive GDP deflator shock reduces the debt ratio only temporarily. A positive primary balance shock, reflecting discretionary austerity, lowers the debt ratio considerably, albeit with a lag of around one year. Fiscal austerity is more effective in reducing debt after periods of economic expansion than after recessions, and more effective when the initial public debt is low than when it is high. Moreover, a positive GDP shock reduces the debt stock to a larger extent when the debt stock is large than when it is low. Finally, the response of debt to a positive budget balance shock is more persistent and statistically significant when the shock is large.