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Eurozone debt burden stuck amid low growth

Published on NewsOK Modified: January 23, 2013 at 12:24 pm •  Published: January 23, 2013

BERLIN (AP) — The eurozone failed to reduce its government debt in the third quarter of last year, as meager growth offset efforts by several of the bloc's 17 nations to improve their finances by cutting spending and raising taxes, according to official data released Wednesday.

The countries' total government debt relative to their annual economic output was barely changed at 90 percent of gross domestic product in the third quarter of 2012 compared with 89.9 percent for three months earlier, the EU's statistics office Eurostat reported. It was up from 86.8 percent of GDP a year earlier.

"The cause behind the slight increase is no longer a growing debt pile, but a shrinking gross domestic product," said Ulrich Kater, an economist with Germany's DekaBank.

"It is positive news that the trend of increasing debt, which began with the financial crisis five years ago, has been stopped," he added.

But shrinking economies make it difficult for eurozone countries to get debt levels under control despite pushing through harsh spending cuts and reforms because shrinking output makes the value of a country's debt as a proportion of the size of its economy worse.

The International Monetary Fund, meanwhile, downgraded its growth forecast for the eurozone Wednesday from 0.1 percent to a minus 0.2 percent contraction, warning that the eurozone "continues to pose a large downside risk to the global outlook."

Given the bleak economic outlook, "one has to be prepared that the debt level in the eurozone will rise further," said analyst Christoph Weil of Germany's Commerzbank.

More than three years after Europe's debt crisis started in Greece, the eurozone only registers very meager growth, with seven member countries still in recession —Spain, Italy, Greece, Cyprus, Portugal, Slovenia, and Finland — according to Eurostat.

Government debt across the entire 27-nation EU totaled 85.1 percent at the end of September, compared with 85 percent in June, according to Eurostat. The European debt levels compare to about 110 percent in the United States, 88 percent in Canada, or 240 percent in Japan, according to IMF data.

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