Public debt across the 17-nation eurozone will rise even as growth returns, hitting a peak of 88.7 per cent of gross domestic product in 2012, the EU said yesterday.
The bailed-out trio of Greece, Ireland and Portugal – facing deeper recession than others – will already have to wait much longer to see their debt burdens ease, according to the annual European Commission report on public finances.
But so too will Spain and non-euro Britain, where heavy banking bailouts and burst housing bubbles will make it even harder to deal with the impact of aging populations on government finances over coming decades, it said.
For these five, “the high increase in the level of debt since the beginning of the crisis means that the reduction by 2014 will be small and reversing the increases seen since the time of the crisis is likely to take many further years”.
Brussels, awaiting a new Autumn economic forecast due on Thursday, is predicting similar economic growth in 2011 to last year’s 1.8 per cent.
Yet the ratio of debt to gross domestic product for the eurozone keeps climbing after particularly big leaps in 2008-9 and 2009-10 at the peak of the financial crisis and global economic downturn.
For 2011, the figure was to be 87.9 per cent – meaning a near-percentage point rise next year again. Greece, Ireland, Portugal and also Italy will all have ratios of more than 100 per cent.
The ceiling under European Union rules is 60 per cent.
“Despite the fact that a return of GDP growth, a gradual withdrawal of the temporary support measures and the start of consolidation is starting to reduce deficits, debt is still expected to continue increasing for the next year or so in most cases,” said Marco Buti, the head of European Economy Commissioner Olli Rehn’s services.
However, the report was published into a surge of renewed concern on financial markets that leading economies are heading into a slowdown.
In a 220-page report, Mr Buti warned that “additional consolidation measures will be required” across the currency area, “not least because population aging is due to have an increasingly negative effect on the public finances and put pressure on their sustainability in coming decades”.
The debt-to-GDP ratio for the eurozone was 66.3 per cent in 2007, but even once debt has reached its predicted 2012 peak, “the issue is not over,” Mr Buti underlined.
For the 27-state European Union, the rise in the ratio between 2007 and the 2012 forecast is from 59.0 per cent of GDP to 83.3 per cent.
“Higher debt is costly in terms of interest payments with the additional taxes needed to service it negatively affecting growth and such negative effects being multiplied by the risk premia,” the report spelled out.
Mr Rehn cancelled for “private” reasons a planned press conference upon the release of the report, but said in a press statement that “member states facing market pressures must continue to deliver on reaching their fiscal targets, and take additional measures if needed”.
He underlined that “ensuring the sustainability of public finances is a prerequisite for enduring economic growth and job creation”.