Eurozone has definitely overcome its structural uncertainties

Reading the latest statistics on EU member states government deficit and debt, issued by Eurostat, the EU statistical service was a revelation. For the first time the Service noted that, “Eurostat has no reservations, nor did it make amendments on the data reported by Member States”. It was a relieve knowing this after all those years of reservations and asterisks on the relevant tables. Who can forget the Greek government deficit as it was erroneously reported many times by the country’s statistical service back in 2010? The ratio of deficit over GDP had to be corrected many times to raise it from the initial 5.6% to the final 15.8% of the DGP for the year 2009. The very reference to “Greek statistics” was at that time a short joke. Now let’s concentrate on the substance of Eurostat’s announcement on government debt. The EU’s statistical service estimates it at 90.6% and 85.3% of the GDP for the Eurozone and the EU27 respectively for last year. Many economic experts consider that the highest sustainable debt to GDP ratio as being somewhere around 90%. Eurozone’s sovereign debt to GDP has been steadily increasing over the past few years from 80% in 2009, to 85.4% in 2010, 87.3% in 2011 and 90.6% in 2012. Those ten percentage units of the GDP in absolute terms come to the region of €930 billion. Not a small amount at all for the euro area of the 17 member states with a GDP of €9.5 trillion last year. Government deficits Unquestionably this fast increase of debt to income ratio was fuelled by the annual government budget deficits. This brings us to the next important statistics published by Eurostat. According to this source, Euro area and EU27 government deficit in 2012 were at 3.7% and 4.0% of GDP respectively. Overall annual government deficits for the euro area were estimated at 6.4% in 2009, 6.2% in 2010, 4.2% in 2011 and 3.7% last year. This is a steadily decreasing variable, showing clearly that the severe correction of government accounts that was introduced over this period, has produced tangible results. Of course this correction was at a great political and social cost. In Greece for example within the short time of three years the government deficit was corrected by almost 14 percentage points of the GDP. This draconian reduction of expenditure and the increase in taxation brought at times the country to its knees. During the same period between 2009 and 2012, the correction of the government budget deficit was 5.7 percentage points for Portugal, 4.3 for Ireland, 3.9 for Spain and 3.6 for Italy. Those five countries during the same period also corrected their competitiveness. As a result they reduced drastically their foreign account deficits. In the latest Commission economic forecasts for 2013 it is predicted that all those stressed economies will have an external surplus, with the exception of Greece with a deficit 2% of GDP. Greece’s foreign account deficit was in the region of 15% of the GDP only some years ago. In conclusion Eurozone seems to have reached a turning point in 2012 as far as the crucial sovereign debt to income ratio is concerned. This will be consolidated, if all euro area member states manage to produce primary government budget surpluses or zero deficits (without counting interest rate payments). Greece for example is about to achieve this in 2013 and Italy despite its political paralysis plans to do the same in 1014. The other programme countries are expected to zero their primary deficits this year. There is no question that Eurozone has to correct a lot more before achieving a sustainable growth path. Apart the sovereign debt there is the problem of the private liabilities, which are at critical point in a number of countries like the Netherlands and Austria. This issue is related closely to the recapitalisation problem of the banks. In any case Eurozone has definitively overcome the period of structural uncertainties and the solution given to the Cyprus financial issue, without any contagion risks appearing in the horizon, is a strong indication of that.