Eurozone debt burden up again

Bloc’s liabilities climb to $12.15t in Q2, 93.4% of its annual GDP; Greece remains area’s outlier

By Pan Pylas And Juergen Baetz (AP)

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Published: Thu 24 Oct 2013, 11:02 PM

Last updated: Tue 7 Apr 2015, 4:53 PM

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 ($12.15 trillion) in the second quarter from €8.75 trillion in the first three months of the year. That’s actually lower than the US’ debt burden of about $17 trillion, a little over 100 per cent of the country’s GDP.

ECB, on new mission, sets out tougher bank health tests

FRANKFURT — The European Central Bank, or ECB, promised on Wednesday to put top eurozone banks through rigorous tests next year, staking its credibility on a review that aims to build confidence in the sector.

The ECB wants to unearth any risks hidden in balance sheets before supervision comes under its roof as part of a banking union designed to avoid a repeat of the euro debt crisis, which was exacerbated by massive bad property loans in countries such as Ireland and Spain. However, some analysts say that if the review is too strict and reveals unexpectedly large problems at some banks, it could backfire by undermining the very confidence it aims to bolster. Eurozone bank shares fell sharply after the ECB announcement.

Setting out its plans to scrutinise 128 top eurozone lenders, the ECB said it would use tougher new measures set out by Europe’s regulator — the European Banking Authority — in the asset quality review it will conduct next year. “A single comprehensive assessment, uniformly applied to all significant banks, accounting for about 85 per cent of the euro area banking system, is an important step forward for Europe and for the future of the euro area economy,” ECB President Mario Draghi said.

“We expect that this assessment will strengthen private sector confidence in the soundness of euro area banks and in the quality of their balance sheets,” he said. — Reuters

The difference, though, is that the US 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 programme 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.”

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