EU incurs record debts

Because of the vaccination progress and the government spending programs, the EU Commission sees a significantly more robust upswing than recently. But that has its price: Debts rise to over 100 percent of economic output.

The economy in the EU could recover faster than previously expected after the Corona crisis.

“For the first time since the outbreak of the pandemic, I am optimistic about the economic outlook.” This is how EU Economic and Monetary Affairs Commissioner Paolo Gentiloni commented on his authority’s latest economic forecast on Wednesday. Since the beginning of 2020, every forecast has been a little more pessimistic than its predecessor. Now the EU Commission has revised the growth prospects for this and the coming year upwards compared to February.

This year the economy of the euro area will grow by 4.3 percent compared to the previous year, in 2022 by 4.4 percent. For the entire EU, the Commission expects growth rates of 4.2 (2021) and 4.4 (2022) percent. For this year, the authority has raised its forecast by half a percentage point compared to February. In the Covid year 2020, economic output in the EU as a whole fell by 6.1 percent and in the euro zone by 6.6 percent.

Among the three large countries whose economies contracted particularly sharply last year (between 8 and 11 percent), the Commission expects Spain and France in particular (with growth rates of just under 6 percent) to conquer each other. In Spain, growth is expected to accelerate to 6.8 percent in 2022, and in France to slow down to the EU average. In Italy, the upswing is weaker with rates of a good 4 percent in each case. Germany, whose economic output “only” fell by just under 5 percent last year, will grow below average in each of the next two years.

As reasons for the better economic outlook, Gentiloni cited the significantly faster vaccination progress, the global upswing, but also the growth impulses that the EU itself is setting with its development plan. The first funds from this program, which is financed from its own EU debt, are expected to flow in the second half of the year. The Member States’ pandemic programs also had a stabilizing effect, said the Italian Commissioner.

The latter will of course mean that national debt will reach new record highs this year. For the first time since the establishment of the monetary union, the average debt ratio in the euro area will climb above 100 percent of gross domestic product, considerably more than the upper limit of 60 percent provided for in the Maastricht Treaty. The commission expects 102.4 percent for this year and 100.8 percent for the coming year. Seven countries are above the 100 percent mark, led by Greece with 208.8 percent this year. It is followed by Italy with around 160 percent, Portugal, Spain, France, Belgium and Cyprus.