Public debt levels in the eurozone neared their projected peak last year after more than a decade of huge borrowing, but data also highlighted a divide between the richer north and Mediterranean countries where the burden is still growing.
Government debt stabilised at 90 per cent of economic output in the 17 nations sharing the euro in the third quarter, barely changed from 89.9 per cent in the second, the EU’s statistics office Eurostat said on Wednesday.
With public debt expected to peak at 94.5 per cent in all of 2013, according to European Commission forecasts, the stabilisation is another sign the eurozone has a chance to emerge from a banking and debt crisis that nearly destroyed it.
But while the Commission expects debt to start falling from 2014, it is still above the 90 per cent level that economists consider damaging for growth.
It is also well above the EU’s limits for a healthy economy and will take decades to pay down.
Europe’s debts soared from the EU-mandated limits of 60 per cent of gross domestic product following the introduction of the euro in 1999, as countries from Spain to Ireland indulged in massive borrowing at very low rates of interest.
A divide now exists between France and Germany on the one hand, where debt fell slightly in the third quarter from the second, and the economies of Ireland, Greece, Portugal, Spain and Italy, whose debt-to-GDP ratio rose in the July-September period.
Debt in Ireland, where a burst real estate bubble forced the country into an international bailout, reached 117 per cent of economic output in the quarter, while the number was 127 per cent in Italy. Spain saw its burden tick up to 77 per cent of GDP, and the Commission sees it reaching 97 per cent in 2014.
Greece’s debt rose to 153 per cent of GDP in the quarter and will reach 189 percent in 2014, although a deal struck by euro zone finance ministers and the International Monetary Fund in November aims to take it down to 124 per cent by 2020.
Rising debt is particularly worrying for Italy and Spain, the euro zone’s third- and fourth-largest economies, which are in recession and need growth to cut debt and unemployment.
Italy’s Economy Minister Vittorio Grilli admitted as much in Brussels this week, saying the country’s economic recovery from 2014 would be “inadequate”. Compared to the United States and Japan, the eurozone looks better off, with economists seeing US debt at 115 per cent of GDP by 2016 and the Japanese burden climbing to an eye-watering 250 per cent by then.
But the European Commission, which has powers to police countries’ debts and wants to avoid the borrowing binges of the past, says that is no excuse, and its top economic official warned earlier this month of the costs to growth.
“When public debt levels rise above 90 per cent they tend to have a negative impact on economic dynamism, which translates into low growth for many years,” EU Economic and Monetary Affairs Commissioner Olli Rehn told diplomats in a speech. “That’s why consistent fiscal consolidation remains necessary.”