While the topic du jour, every jour, has been Greece and its whopping budget deficit, fiscal problems within the Euro-Zone hardly end there.
Athens' budget deficit, which ran at 13.6% of Gross Domestic Product (GDP) in 2009, is not the highest in the bloc. Ireland had the biggest fiscal deficit in the European Union last year – larger than both Greece and the UK - according to revised figures published recently by Eurostat, the European Commission’s official statistics office.
The deficit was revised up from 11.8% to 14.3% of GDP after Eurostat ruled that the Irish government’s €4 billion of aid to Anglo Irish Bank must be treated as part of current spending.
Ireland has raised approximately 60% of the €20 billion it needs this year to finance the deficit. Its repayment schedules are manageable with around €1 billion of redemptions due this year, €4 billion next year and €6 billion in both 2012 and 2013.
European Commission's spring forecasts put the UK budget deficit THIS year at 12% of GDP – the highest projected within the European Union and worse than Treasury estimates. The deficit, if realized, would put Britain at the highest deficit of the 27 EU nations.
The country's budget shortfall was the third largest in the EU last year, but will overtake both Greece and Ireland this year, according to the forecasts. Greece's measures to tackle its public finances problems are projected to reduce its deficit to 9.3% of GDP in the coming year.
The commission's forecasts are for a worse deficit than predicted by Alistair Darling at his March budget. In 2010-11, the commission puts the deficit at 11.5% of GDP, compared with Darling's forecast for an 11.1% budget gap.
Even Germany, easily the healthiest economy in Europe, is finding itself struggling. Germany's budget deficit will soar well above 4% of GDP in 2010, breaching European Union rules, Finance Minister Peer Steinbrueck was quoted as saying on Wednesday.
Under the EU's Stability and Growth Pact, Euro-Zone members are required to maintain public deficits below 3% of GDP and public debt at less than 60% of GDP.
This sharp increase in deficit spending stems mainly from the stimulus package enacted by Chancellor Angela Merkel. At €50 billion, it is the largest since 1945.
Unfortunately, budgets are far easier to expand than contract. Politicians have a vested interest in their own re-election and nothing works better than promising something today while postponing the cost for future years. Austerity measures are never embraced by the domestic populations - keeping even the honest politicians from imposing these fixes. The recent riots and violence in Greece is proof that an entitled populace is loathe to take responsibility.
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