As the euro zone works to regain investor confidence in its finances, 2010 figures released Tuesday revealed that while overall, the region's deficit had dropped, those of Portugal and Greece had not. That signals the need for future austerity measures by nations already hard hit by cuts and tax hikes.
Reuters reported that, according to data released by Eurostat, the European Union's (EU) statistics office, the euro zone's 2010 budget gap amounted to 6.0% of GDP, down from 6.3% in 2009. All countries in the 17-nation group, with the exception of Germany, Luxembourg, Austria and Ireland, improved their budget balances, although debt rose in 16 of the 17; the only exception was Estonia. Public debt amounted to 85.1%, up from a 2009 balance of 79.3%.
Ken Wattret, chief euro zone economist at BNP Paribas, was quoted in the report as saying, "Collectively, the state of the public finances in the euro zone is not as bad as in the U.K., the U.S. or Japan. The problem, of course, is the huge divergence at national level."
Both Greece and Portugal had estimated their budget shortfalls for 2010 lower than they actually were. In 2009, Greece's budget gap totaled 15.4% of GDP. While it came down to 10.5% in 2010, Athens had estimated its level at 9.6%. Greece's public debt also increased substantially, from 127.1% of GDP in 2009 to 142.8% in 2010.
Lisbon had predicted its budget gap for 2010 to come in at 8.6%; however, instead Eurostat said it was actually 9.1% of GDP.
Greece's situation has led to considerable discussion about debt restructuring, which is being opposed by the European Central Bank (ECB) although some German officials have voiced the possibility that such measures might be supported by Berlin. The German government denies any such possibility.
However, that discussion may not be over. Ralph Solveen, economist at Commerzbank, was quoted in the report saying, "The fact that the Greek deficit ratio for 2010 is now also in double-digit territory should further fuel the debate about Greek sovereign debt restructuring." He added, "Today's figures show that a sustained stabilization of Greek government finances is still a very long way off."