Aspects Regarding Public Debt Share In GDP at The Level of European Union Countries

The Amfiteatru Economic Journal, 2014

The paper attempts to empirically explore the transmission mechanism regarding the shortterm impact of public debt and growth. We examine and evaluate the direct effect of higher indebtedness on economic growth for countries in the EU which are in the epicentre of the current sovereign debt crisis. In comparison to similar empirical studies, our research will add to the existing literature by extending the sample of countries and providing the latest empirical evidence for a non-linear and concave (i.e. inverted U-shape) relationship. The empirical analysis primarily includes a panel dataset of 25 sovereign member states of the EU. Our sample of EU countries is divided into subgroups distinguishing between so-called 'old' member states, covering the period 1980-2010, and 'new' member states, covering the period 1995-2010. In order to account for the impact of the level of the debt-to-GDP ratio on the real growth rate of GDP, we employ a panel estimation on a generalized economic growth model augmented with a debt variable, while also considering some methodological issues like the problems of heterogeneity and endogeneity. The results across all models indicate a statistically significant non-linear impact of public debt ratios on annual GDP per capita growth rates. Further, the calculated debt-to-GDP turning point, where the positive effect of accumulated public debt inverts into a negative effect, is roughly between 80% and 94% for the 'old' member states. Yet for the 'new' member states the debt-to-GDP turning point is lower, namely between 53% and 54%. Therefore, we may conclude that the threshold value for the 'new' member states is lower than for the 'old' member states. In general, the research may contribute to a better understanding of the problem of high public debt and its effect on economic activity in the EU.

2014

The issue of budget discipline has always been crucial for European Monetary Union as it concerns both the functioning of EMU in stage 3 and th qualification to access it (Bin-Smaghi, Padoa-Schioppa, Papadia 1994). Yet, the purpose of the fiscal criteria is not uncontentious. The stumbling-bloc is not so much the objective of avoiding “excessive deficits”, but rather the need for binding rules contained in the Treaty on European Union (TEU). Recently, the issue of strictly interpreting the fiscal criteria for the selection of EMU-members in 1999 has also gained prominence. An overly restrictive interpretation could put the whole project at risk, while a lax application could threaten the long-t rm sustainability of the new currency. Proponents of the fiscal criteria argue that countries have typical structural characteristics and that each country must therefore have produced evidence before joining EMU that it is capable of maintaining financial discipline. Issing (1996) went so fa...

Economies, 2022

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2011

In the context of a society with limited resources, borrowing seems to be a desirable method that allows governments to finance the required expenditures. But government borrowing is accepted as long as it is consistent with a sound fiscal policy. Since 1923, when the concept of sound finance was brought into discussion for the first time, by J. M. Keynes, many economists have tried to investigate the issue of public debt sustainability. The hereby paper is designed to be an introductory guide in the theory and practice of fiscal sustainability. In this sense, I tried to make a compelling analysis of the evolution of the public debt among the advanced European economies. I have chosen these countries considering that European Union fiscal sustainability is still a much debated and controversial topic and that unsound fiscal policies of individual members could have adverse effects and harm other members’ economies. For the purpose of this study I used annual data, spanned mostly on ...

2009

The issue of budget discipline has always been crucial for European Monetary Union as it concerns both the functioning of EMU in stage 3 and the qualification to access it (Bini-Smaghi, Padoa-Schioppa, Papadia 1994). Yet, the purpose of the fiscal criteria is not uncontentious. The stumbling-bloc is not so much the objective of avoiding “excessive deficits”, but rather the need for binding rules contained in the Treaty on European Union (TEU). Recently, the issue of strictly interpreting the fiscal criteria for the selection of EMU-members in 1999 has also gained prominence. An overly restrictive interpretation could put the whole project at risk, while a lax application could threaten the long-term sustainability of the new currency.

Journal of Contemporary European Studies, Vol. 19, No. 1, March 2011, Special Issue: Crisis Management in Europe, 2011

The current financial and economic crisis is of unprecedented proportions and intensity. Given the piecemeal approach of the EU institutions to economic policy, their reaction to the mounting crisis has been slow and hesitant. The much feared financial meltdown in the E.U. has been avoided. However this came at the cost of increasing pressure on public finances in most member states, leading to a public debt crisis in a number of them. Financial liberalization and the lagging financial policy reform exacerbated such pressure, bringing certain member states such as Greece to the verge of default. Even more importantly, the stability of the eurozone appears to be in danger. This has led to an avalanche of new measures, including the newly instituted “European Stabilization Mechanism”, as well as proposals for the adjustment of fiscal policy co-ordination, under the general heading of “reinforcing economic governance in Europe” . Financial policy reform, on the other hand, is lagging. A new supervisory framework is being put into place, while reaction from the finance industry is delaying the reform of the regulatory framework. So, what next? Past experience confirms that a financial crisis is usually followed by a sovereign debt crisis. Is this what is happening in the EU? With what social and economic implications? Further, what are the implications of rising sovereign debt for economic policy? These are some of the questions we discuss in the present article. In particular, we examine (i) the concept of the sovereign debt and its relevance to the EU and to the eurozone; (ii) the historical experience of crises; (iii) the response of the EU to the current crisis and (iv) the prospects for policy.

External Debt Problem in the European Union, 2021

The paper's relevance is substantiated by the fact that today a rapid growth of external debt of the most developed countries of the world (including European Union (EU) countries) is one of the most acute problems of the modern world economy and global finance. The paper aims to assess the degree of the external debt burden of various EU countries and evaluate the prospects of solving external debt problems in the EU. The article focuses on dynamics, composition, and specifics shaping the EU countries' external debt based on comparative, economic, statistical, and graphical analysis. Special attention we paid to the analysis of specifics of the EU countries' sovereign external debt composition connected with the acute problem of the rapid growth of public debt in general. The paper examines the ratio of public external and internal debt in various EU countries. It determines the EU particular countries where public external debt is shaping based on either cross-border or domestic model. The research results reveal a high degree of dependence of the EU economy on international debt finance. Gross external debt and sovereign external debt of the EU countries are still growing, and its distribution among various member states is very uneven. The structural imbalance of the EU countries' net external debt has also been revealed: the number of net borrowers is double that of net lenders. According to the basic external debt sustainability indicators, some EU countries are in a pretty tricky situation and entirely depend on the possibility of external debt refinancing.

DOAJ (DOAJ: Directory of Open Access Journals), 2011

The issue of public finance sustainability is very important for all EU member states in the actual context after the economic crisis. This article makes an analysis of the sustainability of public finances for the new member states (which joined EU in 2004 and 2007). Firstly, we try to analyze the impact of the economic crisis on public finances sustainability. The sustainability of public finances can be reflected through the level of public debt and budget deficit for a country. For this reason the article presents the evolution of budget deficits for NMS 12 before and after the recent economic crisis. Based on the econometric regression the correlation between economic growth rate (indicator used for measuring the economic evolution) and the budget deficit is revealed. Results for Romania and NMS 12 are quite similar; fact that tells us that the status of public finances is following the same trend in Romania as in the NMS 12.

In the period between 2004 and 2016, only 11 out of 28 European Union member states complied with the public debt criterion set out in the Stability and Growth Pact. These data clearly indicate that the public debt criterion does not fulfil its intended role and its revision should be considered, though it cannot be done hastily, and consequences of such a move should be borne in mind. The article indicates, based on qualitative research systematised with a descriptive method, to what extent the European public debt criterion has no impact on the real socioeconomic development. Research conducted on selected country groups demonstrates that a low public debt level does not have a positive effect on respective countries' socioeconomic development level.

DOAJ (DOAJ: Directory of Open Access Journals), 2016

The study focuses on the identification of the Europeans public debt determinants. For this analysis, we have taken 12 Europeans countries during the 2000-2014 period. In order to estimate our model, we used the correlated panels corrected standard errors model. The results confirms the persistence of dependant variable i.e. debt-to-GDP ratio. We also found a positive impact of bank nonperforming loans, military expenditures and imports and a negative influence of GDP growth and bank liquid reserves.

1985

The equivalence between public sector deficit and private sector excess savings is demonstrated. Figures for the Nordic countries concerning public deficit, debt and interest rates are presented. The relationship between public deficit and public debt is discussed-stressing the importance of the size of the permanent deficit and of the real rate of interest. The conditions for a stable/unstable development in the debt/GDP ratio are set up. Here the relative size between real growth rate and real interest rate is crucial. The possibilities of increasing the growth rate respectively reducing the interest rate is discussed and the mutual interrelationship is underlined. The paper is concluded with a rather pessimistic view, looking at the OECD-area the deficit has been reduced by restrictive fiscal policies at the cost of growing unemployment. Real rates og interest stay high and far higher than the likely growth rate of the world economy. That creates an unstable situation calling for continuous reductions in public exoences or tax increases both damag ing the future economic performance.

Journal of Economic Asymmetries, 2018

We investigate the sustainability of fiscal policy in a set of 19 European Monetary Union (EMU) countries over the period 1970–2016. Panel unit root tests in the presence of cross-section dependence show that the Government debt series is stationary, indicating that the solvency condition would be satisfied for the EMU-19 countries. This implies the effectiveness of the austerity measures implemented by member countries. Moreover, Markov-switching models estimates show that for 12 selected countries two different regimes exist, with statistically different coefficients across states. For all these countries, the mean of government debt in the more recent years (state 2) is incredibly higher than the mean of the 1970s (state 1). 1. Introduction The sustainability of fiscal policies is a central topic in both economics and public policy. The rise of public sector debt in many industrial countries during the last decades of the Twentieth century caused increasing concern about potentially unfavorable effects on economic growth, inflation, international competitiveness, productivity, and unemployment. Theoretically, one would assume that equilibrium growth paths in the European Monetary Union (EMU) and member countries would be supported politically and economically by compatible fiscal policy chosen through majority rule collective decisions. As of April 1, 2014, the European Union (EU) had 25 member signatories to the Fiscal Stability Treaty, which requires countries to transpose the Fiscal Compact into their national legal framework. Their national public sector budget is required to be in balance (or surplus) as defined by the treaty. Signatories to the treaty are obligated to establish automatic mechanisms to correct deviations from stipulations in the Fiscal Compact, and to develop a national independent fiscal monitoring institution. Moreover, the EU's Fiscal Compact imposes the practical necessity of sustainable public sector accounts, keeping the public sector debt/GDP ratio below 60%, and defining budget balance as a public sector deficit/GDP ratio not to exceed 3%. A major question emerging from the global economic and financial crisis of 2008 is how to restore a country's economic growth while assuring fiscal health and sustainability. This concern is especially relevant for the Eurozone, due to its dismal economic growth prospects coupled with high levels of public sector debt. High debt to GDP ratios and slow economic growth underscore the importance of understanding their effects on fiscal sustainability and economic growth and the trade-offs these often-conflicting goals may entail. Many economists examined EU fiscal policy by empirically testing the present value of budget deficit constraints such as the EU 3%

The recent financial and economic crisis pushed the ratio of public debt to GDP in a number of industrialised countries to unprecedented levels. This phenomenon was especially marked in the peripheral countries of the euro area, which questioned again the adequacy of the institutional framework of the Economic and Monetary Union (including the Maastricht criteria related to public finance). Thus, the new entrants and candidates to the euro area must put a deeper emphasis on the interrelations between public debt sustainability and participation in the monetary union. The article analyses empirically the interrelationships between the participation of the EU-10 countries in the euro area and the sustainability of their debts. The principal method of investigation is the use of panel stationarity tests. The results, contrary to intuition, indicate no significant differences between countries in the euro area and those remaining outside.

Hernán Ricardo Briceño, 2020

Different economic studies have been concentrated on specific and/or isolated factors to explain public debt evolution. In this article we have developed an integrated viewpoint based on financial, social and governance or institutional factors. Under our dynamic econometric assessment for the last two decades (i.e., since the Euro currency inception), economic growth, interest rate, life expectancy at birth, unemployment, government effectiveness and the last sovereign debt crisis have resulted as being the major determinants of its evolution. Public debt sustainability must be assessed continuously with the aim to discuss technical recommendations to maintain it at an even rate, to allow sustainable economic growth and better life standards, in the context of life expectancy increasing and stable governance and institutional conditions. Undoubtedly, the Covid-19 pandemic leads more damaged Eurozone countries with negative real economic growth and high unemployment rates to increase dramatically their current public debts, to such an extent that they could fall into unsustainable paths. Therefore, substantial reforms in European pension and unemployment insurance systems are necessary conditions to ensure public debt sustainability amid Covid-19 pandemic.

2011

The issues of government debt and deficits became a current component of the public finances of virtually all the countries in the world since the Great Depression in the 1930’s. The EU countries do not diverge from this picture and most of them display complex financial problems, in which consistent budgetary deficits have combined with negative net exports, with the