Tuesday

2nd Jun 2020

ECB and rating agencies issue warnings on EU debt

A collection of prominent voices warned EU member states on Tuesday (26 January) about the risks of rising indebtedness hampering economic recovery and spooking financial markets.

European Central Bank chief economist Juergen Stark said the shocking state of public finances could lead to further credit rating downgrades of government bonds and ensuing market turmoil.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

  • The financial crisis has seen a huge surge in government borrowing (Photo: Thomas Hawk)

"We are seriously concerned about forecasts of strong rises in government deficits and the indebtedness of countries in the eurozone," he said in a speech.

Credit rating agency Fitch pointed to the expected heavy toll of the rising debt levels. On average, nearly one fifth of national output will be absorbed by debt costs this year, but in some countries such as Italy, France and Ireland, it will be about one quarter, said the agency.

"The increase in the stock of short-term debt is a source of concern to Fitch as it increases market risk faced by governments, notably exposure to interest rate shocks," said associate director for sovereign debt, Douglas Renwick.

Following a study of 15 EU countries and Switzerland, the agency found that gross borrowing this year "in absolute terms is projected to be largest in France (€454 billion), Italy (€393 billion), Germany (€386 billion euros), and the UK (€279 billion)."

However, Italy, Belgium, France and Ireland are forecast to have the highest borrowing as a percentage of GDP, all at about 25 percent.

Separately on Tuesday, Spain's finance minister Elena Salgado told the European Parliament's economic committee that she wants to see "rigorous and consistent" enforcement of EU budget rules that limit budget deficits to three percent of GDP.

Spain, currently holders of the EU's rotating presidency, is estimated to have run up a deficit of around 11 percent last year.

Action

The warnings come amid concerns the ongoing Greek debt crisis and strains in other eurozone countries, notably Portugal and Ireland, are threatening the cohesion of the 16-member euro area.

On Tuesday night, Portugal's Socialist government outlined proposals to bring down the government's deficit over the course of 2010, without hampering nascent signs of recovery.

The country has seen considerable pressure from the International Monetary Fund and credit rating agencies to start implementing measures rapidly, with latest figures suggesting the peripheral state's deficit reached 9.3 percent of GDP in 2009, far higher than previously expected.

Portuguese finance minister Fernando Teixeira dos Santos said the government would cut the budget deficit by one per cent of GDP this year. "By 2013, we will reduce the deficit to below three per cent of GDP," he added.

The European Commission is expected to give its assessment of deficit cutting measures in four EU member states - Hungary, Latvia, Lithuania and Malta, on Wednesday.

A draft copy of the report, seen by Reuters, says Hungary and Latvia are on track with their fiscal cutback programmes, which require the two states to bring their deficits below three percent by 2011.

Vestager hits back at Lufthansa bailout criticism

Commission vice-president in charge of competition Margarethe Vestager argued that companies getting large capital injections from the state during the corona crisis still have to offset their competitive advantage.

German court questions bond-buying and EU legal regime

The German Constitutional court ordered the European Central Bank to explain its 2015 bond-buying scheme that helped eurozone stay afloat - otherwise the German Bundesbank will not be allowed to take part.

No breakthrough at EU budget summit

EU leaders failed to reach agreement on the EU's long-term budget, as richer states and poorer 'cohesion countries' locked horns. The impasse continues over how to fund the Brexit gap.

News in Brief

  1. Trump threatens to use army to crush unrest in US
  2. Trump wants Russia back in G7-type group
  3. Iran: Fears of second wave as corona numbers rise again
  4. WHO: Overuse of antibiotics to strengthen bacterial resistance
  5. Orban calls EU Commission recovery plan 'absurd'
  6. ABBA's Björn new president of authors' rights federation
  7. Malta and Libya to create anti-migrant 'units'
  8. France reopening bars and parks next week

Stakeholders' Highlights

  1. UNESDAHow reducing sugar and calories in soft drinks makes the healthier choice the easy choice
  2. Nordic Council of MinistersGreen energy to power Nordic start after Covid-19
  3. European Sustainable Energy WeekThis year’s EU Sustainable Energy Week (EUSEW) will be held digitally!
  4. Nordic Council of MinistersNordic states are fighting to protect gender equality during corona crisis
  5. UNESDACircularity works, let’s all give it a chance
  6. Nordic Council of MinistersNordic ministers call for post-corona synergies between economic recovery and green transition

Latest News

  1. Malta fiddles on migrants, as Libya burns
  2. Borrell: EU doesn't need to choose between US and China
  3. Post-Brexit and summer travel talks This WEEK
  4. State-level espionage on EU tagged as 'Very High Threat'
  5. Beethoven vs Virus: How his birthplace Bonn is coping
  6. EU's new migration pact must protect people on the move
  7. Spain takes 'giant step' on guaranteed minimum income
  8. Vestager hits back at Lufthansa bailout criticism

Join EUobserver

Support quality EU news

Join us