The Size and Composition of Government Debt in the Euro Area

In this paper, we use simple accounting schemes and counterfactual experiments, to compare the sources of changes in the public debt to GDP ratio across countries of the European Periphery (Greece, Ireland, Italy, Portugal and Spain), the European Core (Germany and France) and the other G7 countries (Canada, Japan, the United Kingdom and the United States), in two periods—2000–2007 and 2008–2015. In general, Debt‐to‐GDP ratio rose in all countries in the latter period. But the effects of total or primary fiscal deficits, inflation and real growth on the respective Debt‐to‐GDP ratio changes were different across countries in both periods. In the European Core, Ireland and the Anglo‐Saxon countries, successful countercyclical fiscal policies, tended to lower Debt‐to‐GDP ratio. However, in the other European Periphery countries and Japan, unsuccessful countercyclical policies, had the opposite effect. Since in the Euro Area (EA), monetary policy is common and fiscal policies were restricted by rules, this development suggests that differences in shock propagation mechanisms were important drivers of the observed differences in the behaviour of Debt‐to‐GDP ratio between the European Core and the EA Periphery, except Ireland. An implication of this result is that the recently announced EU transfers to the EA Periphery tied up to incentives to improve economic efficiency, seem to be the right policies to ameliorate the effects of the recession brought about by the various social distancing measures to fight the COVID‐19 pandemic, without increasing the Debt‐to‐GDP ratios of these countries.

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“…A more recent study on the same issues is Robinson (2009). 15 Data on this are available for the EA in Lojsch et al (2011).…”

Section: Key Findings Policy Implications and A Postscriptmentioning

confidence: 99%

Debt‐to‐GDP changes and the great recession: European Periphery versus European Core

Agoraki¹,

Kardara

Kollintzas

et al. 2022

Int. J Fin Econ

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“…The concept of common EU debt is an aggregated statistical construct obtained by adding the debt of individual member states. A key measure is the "Maastricht debt" (also known as EDP (Excessive Deficit Procedure) debt), which is the outstanding gross debt (defined as currency and deposits, loans and securities other than shares) at nominal value and consolidated between and within the sectors of general government (Lojsch et al, 2011). This covers the general government sector of the member states, intergovernmental lending and the EC as it possesses tax redistribution power and capacity to issue debt.…”

mentioning

confidence: 99%