European austerity campaign yields meager results

European countries pursuing toughest austerity see limited benefit as growth still lacking

Associated Press
European austerity yields meager results in 2012
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A protestor walks holding a banner reading 'No' during a demonstration against regional government imposed austerity plans to restructure and part privatize the health care sector in Madrid, Sunday, April 21, 2013. Madrid proposes selling off the management of six of 20 public hospitals and 27 of 268 health centers. Spain's regions are struggling with a combined debt of $190 billion (145 billion euro) as the country's economy contracts into a double-dip recession triggered by a 2008 real estate crash. (AP Photo/Daniel Ochoa de Olza)

LONDON (AP) -- The austerity pain pursued by a number of European countries has led to very little gain.

The 2012 figures, published Monday by Eurostat, the European Union's statistics office, showed that many of the countries hit hardest by Europe's financial crisis, such as Portugal and Spain, saw their budget deficits rise — even though they have pursued the strict austerity policies prescribed by international creditors to cut debt.

Though the cumulative level of government deficits fell during the year, it was largely thanks to Germany swinging into a budget surplus. Others countries continue to reel from the impact that austerity is having on their economies. The region's debt level actually rose as the eurozone sank back into recession and tax income from companies and households fell.

"The news that the eurozone budget deficit shrank again last year will be hailed as evidence by some that austerity is working," said Ben May, European economist at Capital Economics. "But the fact that most economies' deficits have fallen by less than expected and that the consolidation has coincided with deeper than anticipated recessions confirms that the costs have been large."

Overall in the eurozone, the deficit dropped in 2012 to around 353 billion euros ($460 billion) from 391 billion the year before, with Germany posting a dramatic improvement that saw it swing into a surplus.

As a result, the budget deficit of the whole eurozone fell to 3.7 percent of the region's annual gross domestic product. Countries in the EU are supposed to keep deficits at or below 3 percent. Overall borrowing in the eurozone is nevertheless lower than in the U.S., which has a budget deficit of around 7 percent of annual GDP.

In 2012, eurozone debt was worth 90.6 percent of the region's GDP, up from 87.3 percent the year before.

Here's a look at the performance of some of the eurozone countries during 2012:

GREECE — The country at the epicenter of the region's debt crisis saw mixed results in 2012. Though the government managed to reduce its annual borrowing to 19.4 billion euros from 19.8 billion the year before, the deficit swelled to 10 percent of GDP from 9.5 percent, largely because of a deepening recession. Even so, the country is winning plaudits for its progress — in 2009, Greece's annual borrowing stood at over 36 billion euros. When not counting the cost of paying interest on its existing debt, the government hopes to post a surplus over the coming year. Public debt fell in 2012 to 156.9 percent of GDP from 170.3 percent, partly because private holders of Greek bonds agreed to a big writedown.

IRELAND — The second euro country to receive a bailout is widely viewed as the poster child of austerity and its performance in 2012 showed further improvements. As well as reducing annual borrowing to 12.5 billion euros from 21.3 billion, Ireland saw its deficit shrink to 7.6 percent of GDP against 13.4 percent the year before. Unlike fellow bailout recipients, Ireland has managed to return to tepid economic growth for most of the past three years and is ahead of its target for pruning the budget deficit to 3 percent of GDP by 2015. As a further sign of its reputational rebound, Ireland has resumed limited auctions of long-term bonds at a relatively low cost. As a result, it is confident of exiting its bailout program later this year.

PORTUGAL — In spite of winning praise from its international creditors, Portugal's deficit swelled to 6.4 percent of GDP from 4.4 percent the year before. However, the 2011 figure was flattered by the transfer of private banks' pension funds to the Treasury, which temporarily improved the balance sheet of public finances. In 2012, the government's plan to use 3.1 billion euros from the privatization of airport management company ANA to lower its deficit fell foul of Eurostat, which didn't allow the inclusion of that revenue in the deficit calculation.

SPAIN — In spite of efforts to get a handle on its debts, Spain saw its budget deficit rise to 10.6 percent of GDP in 2012, the highest in the eurozone. It rose from 9.4 percent the year before as the country took 40 billion euros in rescue loans to help its banks. Excluding the rescue funds, Spain says its deficit last year improved to just under 7 percent, above the initially pledged target of 6.3 percent.

FRANCE — At first glance, Europe's second-biggest economy appears to have its public finances in relatively good health. Its deficit in 2012 fell to 4.8 percent of GDP from 5.3 percent the year before. However, there are growing concerns over the country's upcoming economic prospects as growth has stalled.

The French government originally promised to reduce its deficit to 3 percent of GDP this year, bringing it in line with European rules. But slow growth has knocked it off track, and the government has said the deficit will be 3.7 percent. France has a history of overly rosy forecasts, and some say the government's numbers are still too optimistic.

GERMANY — While many of its euro partners are struggling to get a grip on their public finances, Germany has done so and more. In 2012, it actually posted a budget surplus of 4.1 billion euros, in sharp contrast to the 20.2 billion euros deficit the year before. A number of factors have helped, including restrained spending, lower debt servicing costs and falling unemployment, which means less outlays for jobless benefits. But economists said state income was also significantly boosted by so-called "bracket creep" — the failure of the government to move tax rates up along with inflation. That means workers who are increasingly winning pay raises in the country's tight job market are pushed into paying higher rates — and more tax.

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Elena Becatoros in Athens, Sarah DiLorenzo in Paris, Ciaran Giles in Madrid, Barry Hatton in Lisbon, David McHugh in Frankfurt and Shawn Pogatchnik in Dublin contributed to this report.

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