European countries sharply reduced their deficits last year, official data showed Monday, even as their overall debt grew as governments pushed ahead with austerity measures in the face of the euro crisis.
The deficit of the 17 Euro zone governments fell to 4.1 per cent of gross domestic product in 2011 from 6.2 per cent in 2010, Eurostat, the EU statistical agency, reported from Luxembourg. The Euro zone’s debt as a percentage of GDP rose to 87.3 per cent at the end of 2011 from 85.4 per cent a year earlier.
For all 27 European Union nations, the deficit shrank to 4.4 per cent in 2011 from 6.5 per cent a year earlier, even as debt grew to 82.5 per cent of GDP from 80 per cent.
The most dramatic decline occurred in Ireland, where the deficit shrank to 13.4 per cent of GDP, from 30.9 per cent in 2010. That reflected the sharp expansion of the deficit in 2010, owing to the cost of bailing out the Irish financial sector.
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Germany’s deficit slid to 0.8 per cent of GDP from 4.1 per cent, as Chancellor Angela Merkel’s government benefited from the strongest growth of any major Euro zone economy.
Greece, the ailing country where the crisis was touched off three years ago, saw its deficit decline to 9.4 per cent of GDP from 10.7 per cent in 2010.
With the European and world economies flagging, Greece and other embattled nations face an uphill struggle in reducing their deficits to 3 per cent or less of GDP as stipulated under Euro zone rules.
In all, Eurostat said, 17 EU nations had deficits above 3 per cent. Among them were Britain, not a euro member, at 7.8 per cent of GDP, France, at 5.2 per cent, and Italy, at 3.9 per cent.
In comparison, the United States had a debt-to-GDP ratio last year of more than 100 per cent, and a budget deficit of about 8.6 per cent of GDP.
The debt burden of European countries grew partly because recession shrinks the denominator of the debt-GDP equation. That has led some economists argue that Europe would be better off focusing on growth.
But Jörg Krämer, chief economist at Commerzbank in Frankfurt, said, “The main reason why debt-to-GDP ratios in these countries continue to increase is that their deficits are still too high. The deficit is nothing more than the change in the level of your debt.”
In the case of Greece, he noted that even after accounting for the fact that the economy shrank sharply in 2011, the deficit came down only to 9.4 per cent of GDP. “That means you still have a deficit that is far in excess of the 3 per cent or so that is considered sustainable,” he said.
Krämer said there was little prospect of Greece outgrowing its problems.
“If you want to make its debt burden sustainable,” he said, “there will have to be some kind of debt forgiveness and restructuring.”
But deficit cutting, combined with structural reform, is still the only solution for the Euro zone, he added.
© 2012 The New York Times News Service
