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BackAccording to new calculations of the European Commission, the average debt of public budgets in the Eurozone will be about 88 % by the end of 2011. It is forecast that debts will decrease again from 2013; this, however, requires constant economic growth. With on average 4.3 % forecast for this year, public budget deficits are still significantly above the 2 % deficit from 2008, the year, in which the financial crisis began. One thing, the Report of the EU Commission on Public Finances clearly shows: the crisis, which was above all caused by the financial sector, is by no means over.
Some passages from the 2011 Public Finances Report resemble rallying calls. The Commission writes for example: “The EU strategy of gradual, differentiated fiscal consolidation remains valid in the face of persistent market turbulence and uncertainty about the speed of recovery”. The Commission emphasizes that Member States with fiscal room of manoeuvre should allow automatic stabilisers to function. However, those states facing pressure from the markets, requests the Commission, must continue pursue their fiscal and take additional measures if needed.
Debt-to-GDP ratios above 100% for four countries
Currently four countries have Debt-to-GDP ratios above 100 %: Greece, Italy, Ireland and Portugal. At 97 %, Belgium is following closely behind. In particular France and Germany, which seem to be pulling the strings in the financial crisis and instruct other Member States as to what they should do, have themselves to battle with debts of about 85 and 82 % respectively and thereby have the sixth resp. seventh highest debt among the Eurozone Member States. At about 74 %, Austria is positioned roughly in the middle of the Eurozone debt table.
The Commission Report also provides interesting details on the debt development in individual Member States. For example, the Commission expects Greece’s debt to rise from 105 to 166 % between 2007 and 2012. According to the Commissioners, more than 31 % of the 61 % rise is caused by increased interest payments and poor economic growth. Greece, which, only in a short space of time, had been downgraded to “junk” status by the rating agencies, is now in recession for the third consecutive year, a situation, which might even get worse this year.
Greece significantly improves her primary balance
So far, the positive development of Greece’s primary balance has hardly been mentioned: according to the latest forecast her primary balance, i.e. income minus expenditure excluding debt repayments, will improve from -8.9 % to -0.4 % between 2009 and 2012. In comparison: Austria will probably be able to balance her primary balance deficit of 0.1 % by 2012.
Interesting is also the debt development in the case of Ireland: the Commission expects a rise from 25 to 118 %, hence an increase of about 93 percentage points for the period between 2007 and 2012. 20 % of the new debt are the result of the bank rescue packages alone, calculates the Commission. However, more than 58 % of the new debt can be traced back to a high primary deficit.
EU economic affairs Commissioner Rehn continues to back the so-called “Six Pack”, a package of six legislative proposals, four of which are concerned with fiscal policy. These proposals suggest among other to curb expenditure, to provide concrete details on the debt criterion and the option to impose sanctions.
Better fiscal frameworks shall help to improve things
In a further part of the 2011 Public Finances Report, the European Commission is looking for reasons why such large differences exist with regard to interest rates for government bonds. Not only would the size of debt and deficits play a role, but also the quality of fiscal frameworks. One could recognize this among other from the country ratings resp. the surcharges for Credit Default Swaps, one of the many derivative toys of the financial industry, which make speculations on default risks on bonds possible. However, macro-financial imbalances also play an important role concerning the vulnerability of public budgets, says the Commission. Regulating the banking sector could significantly reduce these risks. Had the fiscal frameworks been better, the Member States would have to pay up to 1.3 % less interest on their government bonds, believes the Commission.
Further information:
2011 Public Finances Report of the European Commission
Debt-to-GDP ratios above 100% for four countries
Currently four countries have Debt-to-GDP ratios above 100 %: Greece, Italy, Ireland and Portugal. At 97 %, Belgium is following closely behind. In particular France and Germany, which seem to be pulling the strings in the financial crisis and instruct other Member States as to what they should do, have themselves to battle with debts of about 85 and 82 % respectively and thereby have the sixth resp. seventh highest debt among the Eurozone Member States. At about 74 %, Austria is positioned roughly in the middle of the Eurozone debt table.
The Commission Report also provides interesting details on the debt development in individual Member States. For example, the Commission expects Greece’s debt to rise from 105 to 166 % between 2007 and 2012. According to the Commissioners, more than 31 % of the 61 % rise is caused by increased interest payments and poor economic growth. Greece, which, only in a short space of time, had been downgraded to “junk” status by the rating agencies, is now in recession for the third consecutive year, a situation, which might even get worse this year.
Greece significantly improves her primary balance
So far, the positive development of Greece’s primary balance has hardly been mentioned: according to the latest forecast her primary balance, i.e. income minus expenditure excluding debt repayments, will improve from -8.9 % to -0.4 % between 2009 and 2012. In comparison: Austria will probably be able to balance her primary balance deficit of 0.1 % by 2012.
Interesting is also the debt development in the case of Ireland: the Commission expects a rise from 25 to 118 %, hence an increase of about 93 percentage points for the period between 2007 and 2012. 20 % of the new debt are the result of the bank rescue packages alone, calculates the Commission. However, more than 58 % of the new debt can be traced back to a high primary deficit.
EU economic affairs Commissioner Rehn continues to back the so-called “Six Pack”, a package of six legislative proposals, four of which are concerned with fiscal policy. These proposals suggest among other to curb expenditure, to provide concrete details on the debt criterion and the option to impose sanctions.
Better fiscal frameworks shall help to improve things
In a further part of the 2011 Public Finances Report, the European Commission is looking for reasons why such large differences exist with regard to interest rates for government bonds. Not only would the size of debt and deficits play a role, but also the quality of fiscal frameworks. One could recognize this among other from the country ratings resp. the surcharges for Credit Default Swaps, one of the many derivative toys of the financial industry, which make speculations on default risks on bonds possible. However, macro-financial imbalances also play an important role concerning the vulnerability of public budgets, says the Commission. Regulating the banking sector could significantly reduce these risks. Had the fiscal frameworks been better, the Member States would have to pay up to 1.3 % less interest on their government bonds, believes the Commission.
Further information:
2011 Public Finances Report of the European Commission