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Government debt continues to rise in the EU

The government debt to GDP ratio in the euro area rose from 92.3% at the end of the first quarter of 2013, to 93.4% at the end of the second quarter of 2013, according to figures released yesterday by Eurostat.

When we look at the whole of the EU, the EU28, the figures rose from 85.9% to 86.8% over the same period.

EU government debt levels continue to rise

EU government debt levels continue to rise

There were remarkable differences across the EU. The highest ratios of government debt to GDP at the end of the second quarter of 2013 were recorded in Greece (169%), Italy (133.3%), Portugal (131.3%) and Ireland (125.7%). The lowest figures were seen in Estonia (9.8%), Bulgaria (18.0%) and Luxembourg (23.1).

In fact Estonia makes a very interesting case study. According to government sources: “The sudden contraction in global economic activity and trade caused by the global credit crisis had a significant impact on Estonia’s open economy, and our economy demonstrated remarkable flexibility in coping with it. The reliability of the fiscal policy was maintained in the changed economic conditions and the support it offered to economic development allowed the state to overcome the crisis without considerable increasing its financial obligations. Increasing economic flexibility, supporting the business environment, and improving the efficiency of the labour market have become the key factors that help guarantee sustainable economic development”

In fact the government points out that its goal is to maintain a sustainable fiscal policy, with a medium-term budgetary objective of having a general government structural surplus. They have imposed a strict fiscal policy to enable a low level of government debt to be maintained.

According to the latest forecast of the Estonian Ministry of Finance, the Estonian economy will grow by 3% this year, and between 2014-2017 economic growth is expected to stabilise at around 3.5%, which is a very impressive success story.

It is also revealing to look at the changes in government debt to GDP ratio in the second quarter of 2013 compared to a year earlier amongst all the EU states.  This shows that compared with the second quarter of 2012, 24 EU member states saw an increase in their debt to GDP ratio at the end of the second quarter of 2013, and four a decrease. The highest increases in the ratio were recorded in Greece (+19.9 percentage points), Ireland (+15.5 pp), Cyprus (+15.2 pp), Spain (+14.7 pp), Slovenia (+14.1 pp) and Portugal (+13.1 pp). By contrast, decreases were recorded in Latvia (-3.8 pp), Germany (-2.1 pp), Denmark and Austria (both – 0.6pp).

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Posted in European Union, eurozone, GDP

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