Budget Deficit

Under EU Eurozone rules for the single currency, no participating country may run a budget deficit running at more than 3% its national wealth.

Ireland’s is set to hit 32% this year. source: Wall Street Journal

European Union rules permit member states to hold a maximum public spending deficit of 3% of gross domestic product, while the maximum gross debt level is set at 60%.

2009 figures however, show that the average government deficit of the 16 euro-zone nations stood at 6.3 percent of G.D.P., and at and 6.8 percent of G.D.P. for the overall E.U. Average debt stood at 79.2 percent and 74.0 percent, respectively.

So it’s not just Greece and Ireland that have broken through the fiscal rules. Everybody has. And the countries still outside the Eurozone such as the UK, are even worse.

But cutting government spending could lead to a vicious circle, in which falling demand further depresses employment, leading to greater declines in demand and output, lower tax revenues, and an even larger budget deficit.

Spain has a larger economy than Greece, Ireland and Portugal put together. Spain’s public debt deficit is 66% of GDP.

“We’re in the midst of an international currency war” – Guido Mantega, Brazil’s finance minister, at the recent International Monetary Fund (IMF) meeting in Washington DC.

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3 Responses to Budget Deficit

  1. UnicHost says:

    So, what do you think could be the solution for this. I am sure ‘currency war’ is not going to end in near future. What else?

  2. I just want to know why EU Eurozone made this rule?

  3. Pingback: UK GDP since 1948 (Economics)

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