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The Greek crisis and the reality of the EU budget crisis


 




Monday, 20 June 2011
As the Greek crisis loams, it is not only Greece that have shown deficiency in its public finances and failure to meet EU requirements. Other EU countries are also struggling to meet their own financial obligations.

Only five of the 27 EU member states meet the requirements of the Stability and Growth Pact. Luckily Sweden is one of them and it is not clear whether Sweden just got lucky or it is a matter of Swedish skilful economic management. Or is it also because Sweden had leant from it own similar situation in the 1990s where its real estate sector crashed.  It is hard to put a finger precisely on the factors that helped Sweden but the fact is that Sweden and Finland are the two Nordic countries in the EU that are shinning at the moment. Denmark is really limping and in deep recession such that it is expected to see more austerity measures in the coming months and years.

At this moment Sweden’s, total gross public debt stands at about 40 percent of GDP. Which makes it stand out and not to be bullied by the big countries even though their own houses are far from being slick clean.
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In the EU smaller countries such as Ireland and Greece have been heavily bullied because they failed to meet financial requirements in terms of debt and budget deficit. Greece's public debts last year was 142.8 percent of GDP and is expected next year exceed 160 percent. No country with more than 150 percent of GDP has so far managed to avoid state bankruptcy.

The last countries that went "bankrupt" were Argentina in 2001 and Russia in the 1990s.
Greece's problem is that they have had an excessive deficit which in various ways had tried to hide.

When the Greek crisis started a year and a half ago the government was forced to admit that it provided wrong figures on its budget deficit.

Italy also had a national debt that is greater than its gross domestic product (GDP), 119 percent. Portugal and Spain are also countries with deficits as well as the UK.

Ireland fell to the bottom of the list in terms of budget deficits. In 2010 Ireland's deficit was 32.4 percent, compared with the EU average of 6.4 percent. The Irish crisis was driven by a huge real estate bubble that burst when the building boom died and housing prices plummeted.

The borrowers did not get their loans and the state was forced to keep the banks under his arms. In the end, the country forced to take the help from among others the International Monetary Fund.

The EU Stability and Growth Pact require that EU countries' budget deficits must not exceed 3 percent of GDP and public debt must not exceed 60 percent of GDP. At the moment its favours only five countries that have managed to meet these requirements namely Sweden, Finland, Denmark, Estonia and Luxembourg.

Eight countries have managed to meet one of the requirements, while 14 countries did not reach them.
Among the countries that have not met the requirements are the six largest EU economies: Germany, France, Britain, Italy, Spain and the Netherlands.
No one is talking about them – so far for now…
By Scancomrk.se Team


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