What factors drove the rise in euro zone public debt from 1999 to 2019?

17 March 2021 in Covid 19 crisis, Euro area, Public debt

Between 1999 and 2019, the eve of the Covid-19 pandemic, the public debts of the 11 oldest euro zone members had risen by an average of 20 percentage points of GDP. This increase in public debt is commonly attributed to structural budget deficits, particularly those in the pre-crisis period and in the “South”. But how much of the stock of public debt in 2019 can be attributed to structural deficits, and how much to GDP growth, interest payments or cyclical deficits? In this post, we use the December 2020 edition of the OECD’s Economic Outlook to break down the changes in public debt into its main factors: structural and cyclical primary balances, the interest burden, nominal GDP growth and stock-flow adjustments. This shows that the structural deficits generally contributed less than is commonly assumed, and that the increase in public debt over the period was largely the result of the direct and indirect consequences of the double-dip recession in the euro zone.

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It seems like it’s raining billions

15 May 2020 in Covid 19 crisis, Economic growth, Euro area, Fiscal policy, Monetary policy

Jérôme Creel, Xavier Ragot, and Francesco Saraceno

The second meeting of the Eurogroup did the trick. The Ministers of Finance, after having once again laid out their divisions on the issue of solidarity between euro area Member States on Tuesday 7 April 2020, reached an agreement two days later on a fiscal support plan that can be put in place fairly quickly. The health measures taken by the Member States to limit the spread of the Covid-19 pandemic will enjoy better short-term financing, which is good news. The additions to Europe’s tools for dealing with the crisis will be on the order of 500 billion euros – this is certainly not negligible, and note that this comes on top of the efforts already put in place by governments – but this corresponds mainly to a new accumulation of debt by the Member States. The net gain for each of them, as we shall see, is actually quite marginal.

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Europe’s fiscal rules – up for debate

17 May 2019 in Euro area, Europe (en), Monetary policy

By Pierre Aldama and Jérôme Creel

At the euro zone summit in December 2018, the heads of state and government hit the brakes hard on the reform of fiscal governance: among the objectives assigned to the euro zone’s common budget that they are wishing for, the function of economic stabilization has disappeared. This is unfortunate, since this function is the weak point of the fiscal rules being pursued by the Member States. Continue reading “Europe’s fiscal rules – up for debate” →

The euro-isation of Europe

17 April 2019 in Euro area, Europe (en)

By Guillaume Sacriste, Paris 1-Sorbonne and Antoine Vauchez, CNRS and Paris 1-Sorbonne

In the latest article in La Revue de l’OFCE (no. 165, 2019), accessible here in French, the authors analyze the emergence of a new European government, that of the euro, built to a great extent on the margins of the EU’s existing framework. In noting this, the article takes stock of a process of the transformation of Europe (the European Union and Member States), which we call here the “Euro-isation of Europe”, in three dimensions: 1) the creation at its core of a powerful pole of Treasuries, central banks and national and European financial bureaucracies; 2) the consolidation of a European system of surveillance of the economic policies of the Member States; 3) the gradual re-hierarchisation of the political priorities and public policies of the European Union and the Member States around the priority given to financial stability, balanced budgets and structural reforms. The article thus makes it possible to redefine the nature of the “constraints” that the management of the single currency is imposing on the economies of the Member States, constraints that are less legal than socio-political, less external and overarching than pervasive and diffuse, and ultimately closely linked to the key position now occupied by the transnational network of financial bureaucracies in defining European issues and policies.

Italy’s debt: Is the bark worse than the bite?

23 October 2018 in Euro area, Europe (en), Monetary policy

By Céline Antonin

The spectre of a sovereign debt crisis in Italy is rattling the euro zone. Since Matteo Salvini and Luigi di Maio came to power, their headline-catching declarations on the budget have proliferated, demonstrating their desire to leave the European budgetary framework that advocates a return to an equilibrium based on precise rules[1]. Hence the announcement of a further deterioration in the budget when the update of the Economic and Financial Document was published at the end of September 2018 frayed nerves on the financial markets and triggered a further hike in bond rates. (graphic). Continue reading “Italy’s debt: Is the bark worse than the bite?” →

How can Europe be saved? How can the paradigm be changed?

4 April 2018 in Euro area, Europe (en)

By Xavier Ragot

There are new inflections in the debate over the construction of Europe. New options from a variety of economic and political perspectives have seen the light of day in several key conferences and workshops, though without the visibility of public statements. The debate is livelier in Germany than in France. This is due probably to the caricature of a debate that took place during France’s presidential elections, which took the form of “for or against the single currency”, while the debate needed was over how to orient the euro area’s institutions to serve growth and deal with inequalities. Continue reading “How can Europe be saved? How can the paradigm be changed?” →

The euro zone: A general recovery

2 January 2018 in Competition, Economic outlook, Euro area

By Christophe Blot

This text is based on the 2017-2019 outlook for the global economy and the euro zone, a full version of which is available here.

The euro zone has returned to growth since mid-2013, after having experienced two crises (the financial crisis and the sovereign debt crisis) that led to two recessions: in 2008-2009 and 2011-2013. According to Eurostat, growth accelerated during the third quarter of 2017 and reached 2.6% year-on-year (0.6% quarter-on-quarter), its highest level since the first quarter of 2011 (2.9%). Beyond the performance of the euro zone as a whole, the current situation is marked by the generalization of the recovery to all the euro zone countries, which was not the case in the previous phase of recovery in 2010-2011. Fears about the sustainability of the debt of the so-called peripheral countries were already being reflected in a sharp fall in GDP in Greece and the gradual slide into recession of Portugal, Spain and a little later Italy. Continue reading “The euro zone: A general recovery” →

A new Great Moderation?

29 November 2017 in Economic outlook, Euro area, Europe (en), Foreign trade

by Analysis and Forecasting Department

This text summarizes the OFCE’s 2017-2019 forecast for the global economy and the euro zone; the full version can be found here.

Ten years after the financial crisis broke out in the summer of 2007, the world economy finally seems to be embarking on a trajectory of more solid growth in both the industrialized and most of the emerging countries. The figures for the first half of 2017 indicate that global growth is accelerating, which should result in GDP growth of 3.3% over the year as a whole, up 0.3 percentage point over the previous year. Some uncertainty remains, of course, in particular concerning the outcome of Brexit and the ability of the Chinese authorities to control their economic slowdown, but these are the types of irreducible uncertainties characteristic of an economic system that is subject to political, technological, economic and financial shocks[1]. Continue reading “A new Great Moderation?” →

Is the recovery on the right path?

24 May 2017 in Competition, Economic outlook, Euro area

Analysis and Forecasting Department

This text is based on the 2016-2018 outlook for the world economy and the euro zone, a full version of which is available here [in French].

The growth figures for 2016 have confirmed the picture of a global recovery that is gradually becoming more general. In the euro zone, which up to now had lagged behind, growth has reached 1.7%, driven in particular by strong momentum in Spain, Ireland, the Netherlands and Germany. The air pocket that troubled US growth at the start of the year translated into slower GDP growth in 2016 than in 2015 (1.6% vs. 2.6%), but unemployment has continued to decline, to below the 5% threshold. The developing countries, which in 2015 were hit by the slowdown in the Chinese economy and in world trade, picked up steam, gaining 0.2 point (to 3.9%) in 2016. Continue reading “Is the recovery on the right path?” →

Leave the euro?

5 May 2017 in Euro area, Europe (en), Monetary policy, Trade

By Christophe Blot, Jérôme Creel, Bruno Ducoudré, Paul Hubert, Xavier Ragot, Raul Sampognaro, Francesco Saraceno, and Xavier Timbeau

Evaluating the impact of France leaving the euro zone (“Frexit”) is tricky, as many channels for doing this exist and the effects are uncertain. However, given that this proposal is being advanced in the more general debate over the costs and benefits of membership in the European Union and the euro, it is useful to discuss and estimate what is involved. Continue reading “Leave the euro?” →