Overall, deficits and debt levels have decreased in the past year. The average European government deficit fell from 3% to 2.4% and debt from 86.8% to 85.2%. In the euro area, the deficit dropped from 2.6% to 2.1% and debt fell from 92% to 90.7%.


However, these figures can disguise the fact that seven countries had a deficit of three per cent or more, and 17 countries had debt of more than 60% and are thus in violation of the Maestricht criteria. Despite this, with regards to government debt, the Commission has only placed three countries – Belgium, Italy and Finland – under stricter observation following Article 126, Paragraph 3 of the TFEU. 

Germany and France

Germany’s plus of 0.7% means that it was one of only three countries with a budget surplus last year. France is still in proceedings due to excessive deficit. This was extended a further time as a result of a decision in the European Semester “Package” from 18 May 2016.  


Greece with minus 7.2% belongs to the deficit champions; however, after revision of deficit/surplus or debt, it had a primary surplus of 0.7%, almost 0.5 percentage points higher than previously anticipated by creditors. This is considered an indication of the country’s long-term debt sustainability; however, this has been called into question, in particular by the IMF. This is not surprising given Greece’s current debt level of 176.9%. A third bailout involving the IMF is conditional upon sustainable relief and restructuring of the country’s debt burden. The IMF is also considering replacing relatively expensive IMF loans with considerably cheaper loans from the euro area. Currently Greece owes its European partners in the euro area around 200 billion euros. A third package with an additional 86 billion euros has commenced and will be completed by the middle of 2018. The IMF has called on Europe to free Greece from all principle and interest repayments until 2040, as well as extend the repayment period from between 2040 and 2080 with a fixed interest rate at its current level of 1.5%. However, decisions regarding these relief measures will first be discussed at completion of the third package which is after the next general election in Germany.  



Meanwhile, the Euro Group has released 10.3 billion euros from the third package. Whether the money benefits “the poor and the most vulnerable”, as stated by IMF Communications Director, Gerry Rice, could be called into doubt this time. First, 2.3 billion euros must be repaid to the ECB, then apparently the state must settle arrears with companies. The previous release was the adoption of several austerity measures and tax increases by the Greek Parliament. These also include reforms to the pension system which aim to reduce pension payments over the medium and long term from their current level of 17% of GDP.  


Portugal failed once again to meet the Maastricht Criteria with a budget deficit of 4.4% last year. Debt has reached almost 130%. Deficit is predicted to drop to 2.4% next year – a risky undertaking. The EU Commission has given Portugal, which has been in deficit since 2009, until 2017 to demonstrate steps towards a convincing reduction in deficit. Regardless of being spared by the Commission, another danger was only narrowly averted. After nearly all rating agencies had downgraded Portugal to “junk status”, there was only one agency that did not follow this trend – the Canadian DBRS. As a result, Portugal could remain in the ECB’s quantitative easing programme.  


Spain had an even higher deficit than Portugal last year at 5.1%. Nevertheless, the EU Commission has also given Spain, which has been in deficit since 2009, until 2017 to demonstrate steps towards a convincing reduction in deficit. The target is a deficit of 3.7% this year and 2.5% next year.  


Criticism of the Commission’s friendly approach towards “deficit sinners” has not only come from German politicians. Even before the current “acquittals” of Greece, France, Portugal and Spain, the European Court of Auditors had criticised excessive leniency, inconsistency and lack of transparency regarding application of provisions. In fact, EU Commissioner Moscovici justified the inaction with somewhat vague wording: “This is not a good time economically and politically” to take sanctions.