As Eurostat announced today, eurozone public-sector debt continued to rise in the second quarter of this year, if at a slower pace. The gross debt ratio rose by 1.1 percentage points (ppt) to 93.4% of GDP. In the first three months of the year the increase had been 1.7 percentage points.
The debt ratio rose on the preceding quarter in 14 eurozone countries, especially inCyprus(+10.8 ppt),Greece(+8.6 ppt) andSlovenia(+7.9 ppt). By contrast, German public sector debt fell again, at 79.8% of GDP it was 2.1 percentage points down on a year earlier.
Greece remains top of the debt league with a debt mountain of 169.1% of GDP, followed byItaly(133.3%) andPortugal(131.3%). InIreland, whose adjustment program ends in December, the debt ratio stood at 125.7% in the second quarter. Only four member countries (Estonia, Finland, Luxembourg and Slovakia), along with EMU accession candidate Latvia, boasted a debt ratio below the Stability and Growth Pact benchmark of 60% in the second quarter of this year.
Although the pointers are to a moderate economic recovery, repairing eurozone public finances remains a drawn-out process. Member states need to keep their foot on the fiscal brake. Despite isolated setbacks – in part due to political instability – there is no evidence of a wholesale withdrawal from austerity in the eurozone countries. This year is likely to see further progress in reining in deficits. We expect the overall eurozone deficit ratio to ease to 2.9% of GDP this year (down from 3.7% last year) and maintain our assessment that the eurozone debt ratio will peak at close to 96% this year before stabilizing next year and starting to decline in 2015.