BERLIN – The euro area failed to reduce its overall government debt in the third quarter of last year, despite efforts by several of the bloc's 17 countries to improve their finances by cutting spending and raising taxes, according to official data released yesterday.
Total government debt for the 17 European Union countries that use the euro, relative to its annual economic output, was barely changed at 90 per cent of gross domestic product in the third quarter of 2012 compared with 89.9 per cent for three months earlier, the EU's statistics office Eurostat reported. It was up from 86.8 per cent of GDP a year earlier.
"One has to be prepared that the debt level will rise further," said analyst Christoph Weil of Germany's Commerzbank. "Several economies are in recession and growth is slow in others, so the peak debt level won't be reached before this or next year," he added.
Government debt across the entire 27-nation EU totaled 85.1 per cent at the end of September, compared with 85 per cent in June, Eurostat said. The European debt levels compare to about 110 per cent in the United States, 88 per cent in Canada, or 240 per cent in Japan, according to data from the International Monetary Fund.
"Compared to the US or Japan, Europe's average debt level looks excellent," Weil said. "But the eurozone is not one entity guaranteeing all of its member states' debt. The problem is the unequal distribution, with some countries like Greece or Portugal having an unsustainably high debt burden," he added.
More than three years after Europe's debt crisis started, the eurozone only registers very meager growth, and seven countries are still in recession –Spain, Italy, Greece, Cyprus, Portugal, Slovenia, and Finland – according to Eurostat.
This makes it difficult for those countries to get debt levels under control despite pushing through harsh spending cuts and reforms because shrinking output makes the value of a country's debt as a proportion of the size of its economy worse.
Consequently, the highest increases of the quarterly debt level were recorded in the countries worst-hit by the crisis: Ireland's rose by 5.9 percentage points to 117 per cent, in Portugal it was up by three percentage points to 120 per cent. Greece, which is in sixth year of a severe recession, recorded an increase of 3.4 percentage points to 153 per cent, the eurozone's highest debt ratio.
Greece, Ireland and Portugal received tens of billions of euros in rescue loans from their European partners and the International Monetary Fund after their debt reached such a high level that made it impossible for them to borrow fresh funds at reasonable rates on financial markets.
Germany has been the main reason why the eurozone as a whole has not fallen into recession – technically defined as two quarters of negative growth in a row – but Europe's biggest economy is showing signs of slowing down as the debt crisis takes its toll on the country's exports. Its economy shrank slightly in the final quarter of 2012 and the government this month lowered this year's growth forecast to a meager 0.4 per cent.
AP