by Victor Mozambigue
Debt is not just an American or Chinese problem. The EU is equally mortified with debt and the problem is not just in Greece. As per the Maastricht Treaty, the countries EU states cannot have debt more than 60% of their GDPs. Currently, the situation is nowhere close to this ideal as 21 countries have passed this limit and 5 have more debt than their GDP. The situation is serious with Greece, where the debt is 177 percent of the GDP.
While the world is focusing on Greece’s extreme debt crisis, Italy and Portugal easily miss the spotlight despite having high public debts. Italy’s debt is 132 percent of its GDP while Portugal’s debt is 129 percent of its GDP. Cyprus, Spain, Belgium, France, Ireland, and Austria are also higher than the Euro area average.
United Kingdom also falls in this category with debt standing at 89.1% of the GDP. Bulgaria, Luxembourg, and Estonia were more successful in managing their debts as they kept it under 30 percent of their respective economic outputs. In absolute terms, Spain, France, Germany, Italy, and the United Kingdom have public debt of more than 1 trillion euros.
The European Commission is concerned
The European Commission published the annual report for the economic and social situation in Euro member states. The commission also published its analysis of the debt situation in Italy. It also proposed a fine on Austria because of misrepresentation in statistics. In this report, Cyprus, Portugal, Italy, Croatia, France, and Bulgaria are facing excessive economic imbalances. Germany, Sweden, Slovenia, the Netherlands, Spain, and Ireland are facing economic imbalances as per your report.
After the Brexit vote, Italy became a major headache for the Euro. Italy’s government is facing a crisis along with its banking sector which has a massive bad loan surfeit which has threatened the financial security of the country. Italy’s political situation is also not appreciable. Paolo Gentiloni, a technocrat, has become the Prime Minister but the problems of the banking system have still not received a solution. The commission is worried about the Italian issue. Growth is exceptionally slow and there is no reform in the country that will lift it out.
— Bloomberg (@business) February 20, 2017
EU is clearly worried about the debt. Bailing out Greece will have an impact on other economies and it has been a topic of hot debate in other member states. A lot of EU member economies are suffering from debt and bailing out Greece or supporting other troubled economies will lead to a pressure on other economies faring better individually. Elections are due in the Netherlands, France, and Germany this year and a possible bailout for Greece could become a polarizing poll issue this year.
Debt burden on a few EU members is going to affect the entire European economy. The chances of the EU destabilizing before this crisis is met can also not be neglected. Has the EU become a symbol of common issues instead of common gains? Only time will tell. Right now, EU needs to worry about stopping debt at its core before it becomes too big a problem to tackle.