The Battle to Reduce Public Debt in the European Union

 

The European institutions emphasize the control of public accounts and the indebtedness of countries. But for Spain, good news does not seem to come, because it has registered the biggest deficit in the European Union. The Spanish public deficit stands at 4.5%, one tenth below what was agreed with Brussels for 2016. At European level, the report published by Eurostat reflects improvements in public debt and control of public budgets.

 

Spain, the country with the highest public deficit

 

 Spain, the country with the highest public deficit

 

Many will wonder what has happened so that Spain is the country with the greatest deficit in the European Union. Well, the situation is explained in part by the 2,574 million euros dedicated to aid to entities in the financial sector, which have been allocated to Bankia, Sareb (the entity in charge of absorbing the toxic assets of the bank) and Novacaixa Galicia.

The Treasury had established somewhat more optimistic forecasts, which placed the deficit at 4.33%, but the aid destined to the bank has ballasted its predictions. And it is that Spain has work ahead, because for 2017 it must reach 3.1% deficit and already in 2018, it should be at 2.2%, that is, outside the so-called excessive deficit procedure.

As we warned in our article “Catalonia and opposition force the Spanish government to change plans for the economy”, the Catalan political situation has forced the government to change its macroeconomic forecasts, so it will work with more conservative estimates, especially with regard to to economic growth and public deficit.

In Brussels there has been a strong commitment to austerity, which is why it is carefully monitored that its member states have a deficit of less than 3%. This golden rule of the European fiscal pact has been broken only by France (3.4%), Romania (3%) and Spain (4.5%).

Better positioned in terms of deficit are the champions of austerity such as Germany, with a 0.8% surplus, the Netherlands also with a surplus of 0.4% or Luxembourg, leading the budget surplus with 1.6%. Greece, has entered the group of surplus countries, reaching a positive balance of 0.5% after applying the proposed adjustments from Brussels.

If we analyze public accounts at European level, we find that the Community deficit is at 1.5%, a figure that has improved 2.1% obtained the previous year.

The battle to reduce the level of public debt

 The battle to reduce the level of public debt

 

In addition to budget control, there are other issues that also occupy the attention of the European institutions. We are talking about the level of public debt. Spain seemed to approach dangerously 100% of public debt of GDP. The previous year was at 99.4%, but some progress has been made, placing the public debt at 99% of GDP. In figures this supposes a public debt valued at a total of 1,107 billion euros.

Another of the fundamental commitments in Europe is to maintain a level of public debt below 60% of GDP. Currently, of the 28 states that make up the European Union, 16 have a debt that exceeds 60% of GDP.

Among the states that fail to comply with the Stability Pact of the European Union, the following stand out: Greece (180.8%), Italy (132%), Portugal (130.1%), Cyprus (107.1%) and Belgium ( 105.7%).

By contrast, the countries with the lowest public debt are: Estonia (9.4%), Luxembourg (20.8%), Bulgaria (29%), Czech Republic (36.8%) and Romania (37.6%). .

If we look at the debt ratio of the eurozone, it remains at 88.9% in 2016 compared to 89.9% in 2015.

Another aspect to highlight is public spending. In the countries that have the euro as the official currency, public expenditures represent 47.6% of GDP, while public revenues represent 46.1%. If we take as reference the twenty-eight countries that make up the European Union, expenditures make up 46.3% of GDP, compared to 44.7% of income. All this implies that European countries, especially those in a deficit situation, must make an effort to improve their collection, in order to improve the results of their public accounts.

It remains to be seen what will be the measures that the European Union and the member states will take to clean up the public accounts, as well as to reduce the level of public indebtedness. It is clear that the European states have work ahead, all in order to achieve budget stability and trying to meet the economic commitments made with the European Union.

 

 

 

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