Air-sea heat and freshwater water fluxes in the Mediterranean Sea play a crucial role in dense water formation. Here, we compare estimates of Mediterranean Sea heat and water budgets from a range of observational datasets and discuss the main differences between them. Taking into account the closure hypothesis at the Gibraltar Strait, we have built several observational estimates of water and heat budgets by combination of their different observational components. We provide then three estimates for water budget and one for heat budget that satisfy the closure hypothesis. We then use these observational estimates to assess the ability of an ensemble of ERA40-driven high resolution (25 km) Regional Climate Models (RCMs) from the FP6-EU ENSEM...