Eurozone: Sovereign debt decreases for the first time since 2007

Eurostat graph. General government gross debt at the end of September 2013 (% of GDP).
BE Belgium, BG Bulgaria, CZ Czech Republic, DK Denmark, DE Germany, EE Estonia, IE Ireland, EL Greece, ES Spain, FR France, HR Croatia, IT Italy, CY Cyprus, LV Latvia, LT Lithuania, LU Luxembourg, HU Hungary, MT Malta, NL Netherlands, AT Austria, PL Poland, PT Portugal, RO Romania, SI Slovenia, SK Slovakia, FI Finland, SE Sweden, UK United Kingdom

During the third quarter of 2013 euro area government debt decreased in absolute terms for the first time since the end of 2007. According to Eurostat, the EU statistical service, at the of the third quarter of 2013, the government debt to GDP ratio in the euro area also decreased to 92.7%, compared with 93.4% at the end of the second quarter of the same year. The same source reveals that in absolute terms Eurozone sovereign debt stood at €8,841,823 million on 30 September 2013 in comparison to €8,875,107mn at the end of June 2013. The bulk of the state debt is in government bonds and bills (€7,015,230mn on 30/9/2013).

Who borrows most?

As expected the more indebted Eurozone countries are the ones hardest hit by the crisis. The highest ratios of government debt to GDP at the end of the third quarter of 2013 were recorded in Greece (171.8%), Italy (132.9%), Portugal (128.7%) and Ireland (124.8%), and the lowest in Estonia (10.0%), Bulgaria (17.3%) and Luxembourg (27.7%). Eurostat notes that “Compared with the second quarter of 2013, ten Member States registered an increase in their debt to GDP ratio at the end of the third quarter of 2013, seventeen a decrease and Slovenia no change. The highest increases in the ratio were recorded in Cyprus (+11.0 percentage points – pp), Luxembourg (+4.6 pp) and Greece (+3.0 pp). The largest decreases were recorded in Portugal (-2.6 pp), Finland (-2.5 pp), Belgium (-1.5 pp), Germany (-1.4 pp) and Hungary (-1.3 pp)”.

The large increase in Cyprus’ sovereign debt last summer was due to a large loan from the European Stability Mechanism. At that time the Eurogroup, comprising the ministers of Finance of euro area countries, agreed to accord to Nicosia a loan of around €10 billion in order to resolve or rescue the two largest banks of the country, which failed at that time. It was loans disbursed under the financial assistance package for Cyprus from the EFSF. It must be noted that the state-island’s fiscal accounts were in good shape but its oversized banks which went bankrupt threatened to drag the entire country to the abyss.

Yearly base

On a yearly base the crisis hit countries recorded a sizeable increase of their sovereign debt. Eurostat states that, “Compared with the third quarter of 2012, twenty-three Member States registered an increase in their debt to GDP ratio at the end of the third quarter of 2013, and five a decrease. The highest increases in the ratio were recorded in Cyprus (+25.3 pp), Greece (+19.9 pp), Spain (+14.3 pp) and Slovenia (+14.1 pp), while decreases were recorded in Germany (-2.8 pp), Latvia (-2.0 pp), Bulgaria (-1.4 pp), Denmark (-0.9 pp) and Lithuania (-0.8 pp)”.

After the first rescue of Greece in spring of 2010 and the subsequent bailouts of Portugal, Ireland and Cyprus and the recapitalisation of the Spanish banks, all sovereign lending to those countries was official. It comprised intergovernmental credit and loans made by the European Financial Stability Facility.