The invasion of the Ukraine, the energy crisis and the rise in prices have cooled the European economy. As happened with the pandemic, governments have had to pull back public spending to avoid greater evils. However, the impact has been much less than that caused by covid-19. The public accounts, in fact, have improved in 2022. The total public debt of the euro zone has fallen four points, to 91.5% of the gross domestic product (GDP), and the public administration deficit has been reduced since 5.3% of GDP to 3.6%, according to data released by the European statistical office, Eurostat, this Friday.
The reduction in the debt ratio relative to GDP is due, to a large extent, to the economic growth that occurred in 2022. In the first half of the year, Europe was still emerging strongly from the crisis caused by the pandemic and the impact from the war. The increase in activity throughout the year was 3.5%. Enough so that, although the nominal volume of debt grew (from 11.8 trillion to 12.2), the reference used to measure the health of public accounts (volume of debt relative to GDP) would improve. This has made it easier that despite the huge aid and tax cuts approved against this crisis approved by the Governments (almost 760,000 million until March according to the calculations of the Bruegel Institute) the balance can be considered positive for now.
Inflation, although it may seem contradictory, has also contributed to keeping accounts under control, since it allows governments to increase collection without having to nominally raise taxes. This has been seen quite clearly in Spain, which last year reduced its deficit to 4.8% and its debt to 113.2%, both substantially above the European average.
Having seen the situation in each country in detail, the photo shown by the data published this Friday by the European Statistics Office resembles that of previous years. Greece, Italy, Portugal, Spain, France and Belgium continue with large mountains of debt, despite the fact that they have reduced it between 2021 and 2022. Greece, specifically, has gone from 209% of its GDP in 2020 to 171.3% , a lower figure even than the one registered before the pandemic. The strong recovery of tourism has allowed Athens this behavior.
Italy, on the other hand, continues to show worrying symptoms that lead the markets to look closely at what is happening with its public accounts. In Rome the debt has dropped from 150% to 144.4%, but the deficit remains at a very high level: 8%. However, this high deficit is partly linked to the way in which one of the measures that the Executive of Prime Minister Giuseppe Conti, who fell in February 2021, approved to get out of the crisis is accounted for: tax credits for reforms in homes that must be computed in 2021 and 2022 and whose impact on public accounts will probably be diluted in the coming years.
Compared to these countries, there are those that usually have the best numbers: Germany, Luxembourg, the Netherlands, Finland, and Austria.
This photo coincides, to a large extent, with the positions that the countries maintain regarding the reform of fiscal rules, whose legal texts the Commission is finalizing these days. Germany is committed to procyclical reform by proposing that the most indebted countries reduce their liabilities by 1% each year, regardless of the pact they reach with the Commission to design their fiscal consolidation paths. Spain and the indebted countries do not agree with this in case this adjustment in times of crisis ends up aggravating the situation and leading them to a recession.
After chaining three systemic crises in the last 15 years (the Great Recession and its financial aftershocks and against the euro, the pandemic and now the war), the debt of the EU States has taken a huge leap. In 2007, the Twenty-seven owed an amount equivalent to just over 62% of their combined GDP; this rate is now 22 points higher (84%). The jump is greater if only the euro zone is taken into account, since it has gone from 66% to this 91.5%. This is due, above all, to the fact that the single currency area includes the six countries of the community club with the most debt (Greece, Italy, Portugal, Spain, France and Belgium). On the other hand, several of those who have less are not there: Bulgaria, Sweden and Denmark.
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