BRUSSELS – The eurozone’s debt burden rose further in the second quarter, official figures showed Wednesday, despite years of austerity that one prominent European Union economist says intensified the financial crisis.
Eurostat, the EU’s statistics office, said debt across the 17 countries that use the euro rose to 93.4 per cent of the eurozone’s annual gross domestic product from 92.3 per cent the previous quarter.
Though countries across the region, such as Greece and Spain, have made great strides in reducing their borrowing through spending cuts and tax increases, they’re still running budget deficits that add to their stockpile of debt.
The eurozone’s economy also isn’t growing fast enough to help lower the debt figures measured relative to total GDP — a sustained period of strong growth would help reduce the debt burden figures.
In absolute terms, the eurozone’s debt pile grew to 8.87 trillion euros ($12.15 trillion) in the second quarter from 8.75 trillion euros in the first three months of the year. That’s actually lower than the U.S.’s debt burden of about $17 trillion, a little over 100 per cent of the country’s GDP. The difference, though, is that the U.S. has a single fiscal policy controlled by one government, as opposed to the eurozone.
The recession in the eurozone only came to an end in the second quarter after six quarterly declines — the bloc’s single currency zone’s longest downturn since its creation in 1999. Figures next month are expected to show the economy continued to grow in the third quarter, and maybe at a faster rate than the 0.3 per cent recorded in the April to June period.
Greece remains the outlier in the eurozone even after its aggressive austerity program and a write-down on the debt owed to private sector investors. Its debt burden stood at 169.1 per cent of GDP at the end of the second quarter, over 35 percentage points higher than the next most indebted country, Italy.
The figures come as a paper published by an economist at the European Commission, the EU’s executive arm, suggests some officials in Brussels are doubting the merits of the austerity strategy they pursued since the debt crisis exploded around four years ago. The conclusions of economist Jan in ‘t Veld echo recent statements from the International Monetary Fund.
“The impact of the austerity measures on growth remains a major concern,” according to the paper. “The process of public deleveraging coincided with private sector deleveraging and has further intensified the crisis.”
After losing access to capital markets to raise money, several countries, notably Greece, took a knife to spending in return for bailouts from other eurozone countries and the IMF. Even Germany, the biggest contributor to the bailouts, has kept a lid on spending at a time when economists have argued it should have spent more to support economic activity across the eurozone.
Simon O’Connor, the spokesman for Olli Rehn, the Commissioner responsible for monetary and economic matters who has taken a lead role in Europe’s bailout strategy, insisted the report reflects the author’s personal opinion.
“All European economies have their specific challenges and that’s why we’ve consistently advocated a differentiated approach to fiscal consolidation,” O’Connor said.
Pylas reported from London.