Source: European Commission, European Economy, Spring 2010 / CESifo DICE Report


In order to make her relinquishing of the deutschemark more palatable, Germany pushed for the inclusion of stringent limits to indebtedness and budget deficits in the Maastricht Treaty that ushered in the euro: no country was henceforth to exceed a 3% budget deficit, and public debt was to stay below 60% of GDP.

Never mind that Germany itself, joined by the other giant in the euro-zone, France, exceeded the 3% limit fairly quickly. Both promptly decided that the punishment prescribed for such a breach was not to be applied to themselves.

Public debt in the euro-zone and elsewhere also started to creep up well before the crisis hit. In 2007, the EU as a whole had a debt of 58.8 percent of GDP, with about half the countries above the Maastricht limit. In 2008 it rose to 61.8%, climbing to 74.0 percent in 2009, 79.1 percent in 2010, and 81.8 percent expected for 2011. Ireland was a darling in this group, with a steady decrease from over 100% in 1985 to a prim 25.0 of GDP in 2007.

Unsurprisingly, most countries saw a notable worsening of their fiscal positions in 2009, with each forking out massive stimulus packages. Ireland’s debt will jump to a not-very-prim 87.3 percent of GDP in 2011. Italy’s general government debt-to-GDP ratio has exceeded the 100%-mark for nearly two decades, with not a glimmer of improvement. Greece has been hovering around the 100% mark since 2000, and now it finally managed to elbow Italy out of the top of the euro-zone debt league, with a hefty 125% in 2010, set to top 133% in 2011. The most virtuous in our table are Sweden, stable at around 42.0 percent since 2008, and Finland, with close to 55% in 2011. Every other country in the table exceeds now the Maastricht limit.

For comparison, the figures for the UK, the USA and Japan are also shown. The UK is inching towards 90%, while the US will have nearly doubled its debt between 2000 and 2011, to 103%. Japan’s has exceeded 100% of GDP for nearly 15 years, and will approach 200% of GDP in 2011. The only country in the world that trumps it is Zimbabwe, with over 280%. But don't worry. There's still room at the top.



Note: This text is the responsibility of the writer (Julio C. Saavedra) and does not necessarily reflect the opinion of either the person(s) cited or of the CESifo Group Munich.

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