Eurozone budget deficits rise nearly tenfold to counter Covid-19 pandemic

Eurozone governments plan to go deeper into the red than ever before this year, racking up budget deficits of close to €1 trillion as they splash out on emergency measures to counter the coronavirus crisis, Financial Times reported.
 

Draft budget plans published by member states on the European Commission website indicate the 19-country bloc will slide to an aggregate fiscal deficit of €976 billion, equal to 8.9 per cent of gross domestic product this year, according to Financial Times calculations.
 

That means this year’s budget deficits would be almost 10 times higher than both last year’s levels and the commission’s forecasts for this year. Governments estimated their deficits would stay high even when their economies rebound in 2021, when they expect an aggregate shortfall of just under €700 billion, or 6 per cent of GDP.
 

The previous peak in eurozone deficits came in early 2010, according to the European Central Bank, when budget shortfalls rose to 6.6 per cent of GDP. That led to levels of public indebtedness which unsettled investors and sowed the seeds of the subsequent eurozone sovereign debt crisis.   
    

However, there have so far been few signs of alarm from investors or policymakers about the surge in government spending and debt levels. Borrowing costs of peripheral eurozone countries, such as Italy and Greece, fell to record lows last week, driven down by the ECB’s massive bond-buying programme.