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EU Public Finances Improving by Sven R. Larson

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EU Public Finances Improving

New numbers from Eurostat show that government finances have improved across the EU. 

Budget deficits declined in the euro area from 3.4% of gross domestic product, GDP, in the fourth quarter of 2021, to 2.3% of GDP in the first quarter of 2022. 

In the EU as a whole, the decline was from 3.3% of GDP to 2.2%.

Three countries with large deficits saw significant improvements. The Bulgarian budget deficit fell by almost half, from 9.6% of GDP to 4.9%. In Latvia, the deficit fell from 6.5% of GDP to 3.1%, with Slovakia close behind with a deficit reduction from 6.4% of GDP to 3.7%. 

In total, twelve EU member states experienced a reduction in their deficits. Portugal turned a deficit of 1.2% of GDP into a 0.9% surplus. Ireland and Luxembourg moderately improved their budget surpluses.

In eight countries, budget balances deteriorated. The Danish government went from a 0.6% of GDP surplus in Q4 of 2021 to a minuscule 0.1% in Q1 this year. Lithuania experienced a decline of its surplus from 1.6% to 0.3%.

Sweden was the only country that saw a surplus turn into a deficit: in the last quarter of 2021 its public finances showed a positive margin of 0.5% of GDP. In the first quarter of 2022 the balance was a negative 0.1% of the country’s GDP.

The overall trend of improving budget balances helped improve debt-to-GDP ratios across Europe. For the EU as a whole, total government debt declined from 88.1% in the fourth quarter of last year to 87.8% in the first quarter of 2022. The corresponding numbers for the euro zone are marginal: 95.7% and 95.6%, respectively.

The public debt burden varies significantly across the EU. Greece remains the most indebted country, with 189.9% of GDP; the ratio is a marginal improvement from 193.3% the last quarter of 2021. Italy follows Greece with a debt ratio of 152.6% of GDP; Spain (117.7%), France (114.4%), and Belgium (107.9%) complete the top-five most indebted EU member states. 

Estonia has the lowest debt ratio at 17.6% of GDP, followed by Luxembourg (22.3%) and Bulgaria (22.9%).

Sven R. Larson is a political economist and author. He received a Ph.D. in Economics from Roskilde University, Denmark. Originally from Sweden, he lives in America where for the past 16 years he has worked in politics and public policy. He has written several books, including Democracy or Socialism: The Fateful Question for America in 2024.