Eurozone easing rises as deficits tumble

The Guardian

Wed, Oct 24, 2012 - Page 15

The eurozone appeared on Tuesday night to be in a stronger position to survive the debt crisis after EU figures revealed member governments cut their annual budget deficits last year.

The EU statistics office, Eurostat, said the aggregate budget deficit in the 17 countries using the currency fell to 4.1 percent of GDP last year from 6.2 percent in 2010 — the first year of the sovereign debt crisis.

Ireland cut its annual deficit from 31 percent of GDP to 13.4 percent, while Germany brought the deficit on its annual budget down to 0.8 percent, Eurostat said.

The figures were published before a flurry of meetings that culminated in the Irish Taoiseach (prime minister) Enda Kenny gaining a commitment from French President Francois Hollande and German Chancellor Angela Merkel that cheaper funds would be made available to prevent Dublin’s bank rescue from bankrupting the country.

Hollande said after talks with Kenny that he supported calls to treat the Irish banking sector as “a special case” after the Dublin government was almost brought to its knees by the crippling cost of bailing out the Irish Republic’s main banks.

Merkel previously blocked direct recapitalization of banks with eurozone rescue funds until a banking supervisor is fully operational late next year, but issued a joint statement with Kenny on Sunday affirming that Ireland’s bank rescue was a “special case.”

“I said Ireland was a special case and should be treated as such,” Hollande told reporters after his meeting with Kenny.

Asked if recapitalization could be backdated, he said: “Yes, recapitalization already took place through their own funds so the Eurogroup will take that into account.”

The Eurogroup represents the 17 nations in the single currency zone and has sought to impose strict austerity measures on members with escalating debt.

Eurostat said although annual budget deficits had fallen, eurozone public debt rose to 87.3 percent of GDP last year from 85.4 percent.

Ireland’s public debt jumped to 106.4 percent from 92.2 percent in 2010 as the benefits of spending cuts were undermined by a fall in tax receipts and a prolonged recession.

Greece, where the crisis started, had the highest debt ratio in Europe last year, reaching 170.6 percent of GDP, or 355 billion euros (US$462 billion). It reduced its annual deficit to 9.4 percent from 10.7 percent in 2010 and 15.6 percent in 2009.

Greek prime minister Antonis Samaras said his government would receive 31.5 billion euros in loans next month if the Athens parliament pushed through 13.5 billion euros in spending cuts and tax increases, though it remained unclear that MPs would do so.

Greek Finance Minister Yiannis Stournaras warned MPs that “people would go hungry” should Greece failed to take receipt of its next rescue loans.