Eichengreen, B. & Panizza, U. (2014) “Can large primary surpluses solve Europe’s debt problem?“, VoxEU Organisation, 30 Ιουλίου.
For the debts of European countries to be sustainable, their governments will have to run large primary budget surpluses. But there are both political and economic reasons to question whether this is possible. The evidence presented in this column is not optimistic about Europe’s crisis countries. Whereas large primary surpluses for extended periods of time did occur in the past, they were always associated with exceptional circumstances.
Europe’s economies have heavy debts and gloomy growth prospects. This fact raises obvious concerns about the sustainability of public debts, concerns that have manifested themselves periodically in increases in the yields that investors demand to hold governments’ debt securities. As we write, investors are relatively sanguine. The question is whether they will remain so. It is whether – and if so, when – worries about debt sustainability will be back.
The IMF, in its Fiscal Monitor (2013), sketches a scenario in which the obligations of heavily indebted European sovereigns first stabilise, and then fall to the 60% level targeted by the EU’s Fiscal Compact by 2030. It makes assumptions regarding interest rates, growth rates and related variables, and computes the cyclically adjusted primary budget surplus (the surplus exclusive of interest payments) consistent with this scenario. The heavier the debt, the higher the interest rate and the slower the growth rate, the larger the requisite surplus. The average primary surplus in the decade 2020-2030 is calculated as 5.6% for Ireland, 6.6% for Italy, 5.9% for Portugal, 4.0% for Spain, and 7.2% for Greece.
Σχετικές αναρτήσεις:
- Daveri, F. (2014) “The German surplus and the Eurosceptics“, VoxEU Organisation, 28 Μαΐου.
- Rehn, O. (2013) “Turning Germany’s surplus into a win-win for the Eurozone“, Olli Rehn’s blog, 11 Νοεμβρίου.