EU statistics office reports lower deficits, higher debts; voices doubts over Irish data

BRUSSELS – The 17 countries that use the euro still face an uphill struggle to control their debts in spite of managing to slash government deficits to 4.1 per cent of economic output in 2011, official data show.

Figures reported Monday by the European Union’s statistics office confirmed the effects of harsh austerity programs on the eurozone members’ economies, which in 2010 ran an overall deficit of 6.2 per cent of gross domestic product. Yet despite these efforts, overall debt rose from 85.3 per cent of GDP to 87.2 per cent — the highest level since the euro was created in 1999.

After a financial crisis that has now dragged on for close to five years, Monday’s figures underline how difficult it will be for the eurozone to bring its deficits and debts back below the EU-stipulated limits of a deficit of 3 per cent and debt of 60 per cent of GDP.

This task will become even harder if the eurozone’s economy has fallen back into recession. Separate data also released Monday indicated that the private sector in the 17-country block continued to shrink in April. The purchasing managers’ index for eurozone, compiled by private data firm Markit, fell to a five-month low of 47.4, down from 49.1 in March. A level below 50 means that the private sector is contracting.

According to Eurostat’s data, Ireland’s deficit of 13.1 per cent of GDP was by far the highest as the bailed-out country continued to spend billions bailing out its struggling banks. Eurostat expressed reservations about the 13.1 per cent figure, amid disagreement with the Irish government whether €5.8 billion ($7.65 billion) in aid to two nationalized banks should be included in the country’s deficit.

Ireland, which was granted €67.5 billion ($89.05 billion) in rescue loans from the EU and the International Monetary Fund in 2010, argues that the bank bailouts should not be included in the government deficit, as some of that money may be recovered. Without the bank aid, Ireland’s deficit would have been 9.4 per cent of GDP, still the highest in the EU.

In a statement, Ireland’s finance ministry said the higher figure was the result of a technical “reclassification” of assets, pointing out that the 9.4 per cent figure was far below the 10.6 per cent target it has promised to meet in return for the rescue loans. In 2010, massive bank bailouts propelled Ireland’s deficit to a record 31.2 per cent of economic output. The finance ministry said this year’s deficit should fall to 8.2 per cent of GDP.

Greece’s deficit of 9.1 per cent of GDP was not much better than Ireland’s, and Athens has already started injecting billions of euros into its own banks which are reeling from a restructuring of the country’s government debts. While the restructuring reduced Greece’s debt levels, the resulting bank bailouts may push up its deficit in the short-term.

Spain, which has seen its borrowing costs rise sharply in recent weeks, ran a deficit of 8.5 per cent,

Across the 27-country EU the average 2011 deficit was 4.5 per cent of GDP, down from 6.5 per cent in 2010. Among the EU states that do not use the euro, the U.K. had the highest deficit, which reached 8.4 per cent of GDP in the year ended March 31. In contrast to the rest of the EU, the U.K.’s fiscal year runs from April 1 to March 31.

__

Shawn Pogatchnik in Dublin contributed to this story.