THE EU’s budget deficit tripled last year, swelled by shortfalls in Greece, Ireland and Malta, according to new data released by the EU’s statistical agency.
The budget gap accelerated from 0.8 per cent of gross domestic product (GDP) at the end of 2007 to 2.3 per cent last year in the 27-member bloc, said Eurostat, and rose from 0.6 per cent to 2.0 per cent in the 16 countries using the euro, falling short of the EU’s 3 per cent limit.
Government debt in the EU also rose, from 58.7 per cent of GDP in 2007 to 61.5 per cent last year, and from 66.0 per cent to 69.3 per cent in the euro zone.
Ireland’s deficit was 7.2 per cent of economic output last year, the second-highest in the EU. It was flanked by Greece (7.7 per cent) and Malta (5.5 per cent). The UK and Spain followed closely behind with shortfalls of 5 per cent and 4.1 per cent respectively. Germany had the lowest figure, breaking even at 0 per cent.
The Government says Ireland’s budget deficit will be 12 per cent in 2009 and the European Commission predicts it could rise to 15.6 per cent in 2010 if Dublin doesn’t implement cost-cutting and revenue-raising measures.
Nine member states crossed the EU’s government debt threshold of 60 per cent of output last year, with Italy and Greece the worst culprits. Ireland remained below the limit with 44.1 per cent, but is likely to pass the 60 per cent limit this year, according to the commission.
Fine Gael MEP Gay Mitchell, Ireland’s only representative on the European Parliament’s new financial crisis committee, told The Irish Times: “We will have to return to a debt ratio of 60 per cent. It is in our own interest to do that. The government has to get public finances under control not for the sake of Europe, but for the sake of the Irish people.”
For the first time, Eurostat also published figures on EU crisis spending, estimating that bank guarantees pledged in 2008 were worth 6.5 per cent of Europe’s GDP. Ireland came out on top of the 2008 spending league table after being first to pledge just under €400 billion in guarantees last October.
However, Eurostat decided to mark the costs as “contingent liabilities” in government accounts, which will count towards the debt burden only when called in. If 2008 guarantees are taken up in full across the union, the public bill would amount to 6.5 per cent of the bloc’s GDP, but the figure is likely to rise when 2009 data is released next year, say commission officials.
This week the Luxembourg-based statistics agency decided that Nama, Ireland’s initiative to clean up toxic property loans, would also be classified outside general government spending, a fact that could significantly lower the country’s debt burden, say analysts.
This is because the Government is to set up a majority private-owned “special purpose vehicle” to administer the assets, which for statistical purposes will take the debt – €54 billion on assets with a book value of €77 billion – off the Government’s balance sheet.
“Eurostat’s decision helps lift the immediate pressure off Ireland,” said Société Générale’s Ciarán O’Hagan in a research note, adding that it will “help validate the rating agencies’ wait-and-see attitude, and ought to at least prevent Ireland falling below AA for Standard Poor’s and Aa1 for Moody’s”.
Ireland’s credit rating has been downgraded several times in 2009 by rival credit agencies including Moody’s, Standard Poor’s and Fitch, which blame deteriorating public finances.
