It may have set a record in 2010 but Ireland won’t join the UK, France, Spain and Greece by breaching deficit limits this year
When it comes to fiscal discipline in the European Union, three is the magic number. That’s a deficit limit of 3 per cent of GDP, and five EU states will make the budgetary bad books this year by breaching that level, according to economists surveyed by Bloomberg since January.
These five – the UK, France, Spain, Greece, and Croatia – include three of Europe’s five largest economies. Three more countries – Finland, Poland, and Romania – are seen posting deficits at the threshold. The EU dictates that governments must narrow budget deficits to within 3 per cent of GDP and reduce debt to 60 per cent of GDP, or face fines (though none have ever been applied despite consistent breaches).
Since the Stability and Growth Pact came about in 1998 to strengthen the monitoring of budgets, 25 of the EU’s 28 members have overstepped the deficit limit. Sweden, Estonia and Luxembourg are the only countries that have avoided breaching it. The 2008 financial crisis is largely to blame for this poor track record, as governments rolled out aggressive stimulus programs.
The EU went from two member violations in 2007 (Greece and Hungary) to 22 in 2009, including fiscal conservatives such as Germany and Austria. Over that period, the average deficit for the EU rose to 6.7 per cent of GDP from just 0.9 per cent. In 2010, Ireland set the individual record with a staggering 32.3 per cent gap, according to European Commission data. This year’s club of projected over spenders will be the smallest in nine years.
For debt-ridden Greece and growth- stunted France, that will be little consolation as they mark their 21st and ninth consecutive years of excessive deficits, respectively. Both have received warnings and extensions from the European Commission, with France given extra breathing room until 2017 to make the necessary reforms. French Finance Minister Michel Sapin said he expects the deficit to be back in line by the new deadline, though the latest Bloomberg survey is not so optimistic. Economists forecast a 3.2 per cent deficit next year, decreasing to 3 per cent in 2018.
Besides France, only Croatia is still expected to be in breach next year after emerging from a six-year recession. Spain will post a 2.8 per cent deficit, followed by Greece at 2.4 per cent and the UK at 2.2 per cent. As for who’s managing their budgets the best, Luxembourg is the 2016 winner, with a projected surplus of 0.4 per cent of GDP, followed by Estonia and Germany, whose governments will manage to spend less than they take in for the third year in a row. All data is calculated as of the year a respective country joined the European Union, and historical data is taken from the European Commission’s AMECO database.
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