The average debt level in the eurozone was 70 percent when the global financial crisis broke out in autumn 2008. In 2019, before the outbreak of the corona pandemic, the figure was already 86 percent – now we are talking about 90 percent.
“Europe has a real debt problem. The ECB is still holding around a quarter of all debt from the low interest rate phase. When the sale of these bonds starts, the states will have to take on new debt on much worse terms. This will exacerbate the debt problem,” says Hanno Lorenz, economist at Agenda Austria.
Austria only in midfield
Austria also has a problem, even if its debt level is in the middle range at 78 percent. The ageing population is driving up the costs of pensions, care and the health system. Without countermeasures, a debt level of more than 100 percent is expected in this country in the next few years. “Without reforms, we will end up with Italian conditions,” says Lorenz.
WIFO expert Margit Schratzenstaller also misses structural reforms to create budgetary scope for future challenges – both in Europe and in Austria.
“This ranges from climate change, demographics and digitalization to defense,” she says, naming the most important areas. “A new approach that has long been taboo would be a higher EU budget for cross-border projects, such as rail and energy networks. The EU recovery plan expires in 2026 and at the moment nothing is coming in its place,” says Schratzenstaller.
In recent years, several countries have decided to impose stricter debt or spending brakes. The exemplary countries in Europe therefore make surpluses in good years, which Austria only managed in 2018 and 2019. However, several eurozone countries are far from the Maastricht criteria – only three percent deficit, a maximum of 60 percent national debt. Schratzenstaller says: “Rules are only as good as they are lived. Ultimately, it is always about political decisions, for example, whether to hand out expensive election sweeteners or not.”
Below are three examples of “debt sinners” and three examples of countries that have their fiscal policy more or less under control:
Greece
The debt level in Greece rose to 180 percent of GDP during the global financial crisis and a recession lasting several years. The euro crisis occurred, the monetary union was called into question and Athens had to be rescued under strict international observation. Strict austerity and restructuring programs were imposed on the country, and today the debt level has fallen to 150 percent, partly because the economy is growing strongly again (2.9 percent this year) and the unemployment rate has fallen to 100 percent for the first time in 14 years.
10%. Greece remains the most indebted EU country for the time being, but Brussels considers the debt to be sustainable, mainly due to long maturities and low interest rates.
Italy
With 139 percent of gross domestic product (GDP), Italy is in an inglorious second place behind Greece among the EU’s debtor countries. The main difference is that Italy is the third largest economy behind Germany and France, but Greece is only in 16th place (Austria: 10th place). Economic difficulties in Austria’s second largest trading partner therefore have a much greater impact on the eurozone. This includes, for example, the fact that economic growth is weak (2024: +0.5 percent), which is why Italy’s debt level continues to rise and is now around 3,000 billion euros. One of the government’s biggest concerns is the aging of society.
France
At 112 percent of GDP, France now has the third-highest debt ratio in the EU and has overtaken the former problem child Spain in a negative sense, i.e. pushed it into fourth place. The government in Paris’s lack of enthusiasm for reform and expensive spending programs in the years of Corona, energy price shock and inflation crisis are contributing to this – as is the bloated, and therefore costly, state apparatus. France and Italy, the second and third largest economies in Europe, together hold 42 percent of all debt in the eurozone (including Germany, it is 60%). A controversial pension reform came into force in September. The positive highlight will probably be the Summer Olympics in Paris from July 26th.
Ireland
With an aggressive tax and settlement policy, Ireland has attracted high-tech companies such as Google, Amazon and Microsoft and has earned itself the title of “Celtic Tiger” over the years. In 2013, debt was still at 120 percent. Like Greece and Spain, Ireland ran into severe economic turbulence, but was able to leave the euro rescue package fairly quickly. The debt level has now fallen to 40 percent (Austria: 78 percent), but sales, exports and tax revenues are heavily dependent on the multinationals. On the other hand, there is de facto full employment and the government can draw on its full resources, not least because of the rapidly growing population (+40% since 2000).
Denmark
Denmark is representative of the always highly praised Scandinavian countries. And not without reason: just behind Estonia and Bulgaria, Denmark is the best Western European EU country in terms of national debt. Before the Corona pandemic in 2019, the debt level was almost 40 percent, but this year it is only 26.5 percent, according to the EU Commission. This is made possible by considerable budget surpluses (3.1 percent in 2023) supported by low inflation (2%), relatively high economic growth (2.6%) and, at the same time, stricter rules for controlling public spending. This avoids deficits and the mountain of debt can be gradually paid off.
Estonia
The consequences of the war in Ukraine are putting pressure on growth, production and investment in Estonia. In 2022, the country had the highest inflation in the EU at 19.4 percent, but at 21 percent it still has the lowest national debt of all EU countries. IT and digitalization remain the driving forces of “e-Estonia”. Before the Corona crisis, Estonian national debt was still less than ten percent of GDP. After the change in the east, the formerly communist-ruled country entered the free EU market economy with no debt at all and had long pursued a rigorous fiscal policy. The pandemic forced a temporary departure from the course, which doubled the debt.