Wednesday, April 24, 2013

Rising EU Government Spending & Other Notes

Due to computer problems, my internet access has been very limited the last few days, which explains the lack of posts. Now that problem has been resolved (at least I think it is) and so posting will become more frequent again. One very interesting that was published during this period was this eurostat report on government finances in the EU in 2012.

It contains several interesting points.

-While the weak performance of Greece and other crisis countries is often attributed to "excessive spending cuts", government spending has actually increased there relative to GDP with Greek government spending for example increasing to 54.8% of GDP in 2012, compared to 52% in 2011. Similarly, government spending in Spain rose to 47% from 45.2%. Deficits still fell mostly (except in Spain) but that was entirely due to higher revenues, or in other words higher taxes.

-There were some countries that did cut government spending dramatically, with for example Ireland reducing spending to 42.1% of GDP from 48.1% in 2011 and 66.1% in 2010 and Latvia from 43.4% to 36.5%, both countries that has now seen their economies recover. Now, in Ireland's case most of the 2010-11 decline and also some of the 2011-12 decline was due to lower expenditures for bank rescues, but even excluding that spending declined. And in Latvia that was not a significant factor at all.

-Germany was the only country with a budget surplus, though 5 countries (Estonia, Sweden, Luxembourg, Bulgaria and Latvia) had deficits close to or below 1% of GDP. At the other end, Spain had the largest deficit at 10.6% of GDP even greater than Greece' 10%.

Despite its small surplus, the German government debt still increased by more than €80 billion. In part this can be explained by a €36 billion increase in lending to Greece and other crisis countries. The explanation for the rest of the increase is unclear, but presumably it is related to an increase in government financial assets of unexplained purpose


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