European deficit falls

23 Apr, 2012

The deficit to GDP ratio for the bloc as a whole fell to 4.1% from 6.2% in 2010, Eurostat said. The overall debt to GDP ratio rose to 87.2% from 85.3%.  Eurozone governments have introduced far-reaching austerity measures designed to cut deficits.  The Republic of Ireland, Greece and Spain had the highest deficits.

The deficit ratio is the difference between a government’s annual expenditure and its revenues, expressed as a percentage of its annual GDP. The official deficit target, as laid down in the Maastricht Treaty, is 3% of GDP.   Following the financial crisis of 2008, a year in which the eurozone’s deficit ratio stood at 2.1%, budget deficits increased significantly as governments spent billions of euros on bail-out packages and stimulus measures.  More recently, governments have cut spending in order to reassure international lenders of their credit worthiness and bring deficits back towards target.

The debt ratio is a country’s total stock of debt expressed as a percentage of its total annual economic output.

The debt to GDP ratio in the Irish Republic rose from 92.5% to 108.2%, in Greece from 145% to 165%, and in Portugal from 93.3% to 107.8%.

The UK’s debt ratio rose from 79.6% to 85.7%.

By contrast, Germany managed to cut its debt ratio from 83% to 81.2%.

Credit: BBC/APD/Reuters

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